Julie Needles is the owner of Movie Rags, a corporation that makes costumes for independent movie productions. The company began operations in January of 2011.
The company has three departments: Design, Sewing, and Embellishing. Each department uses a different overhead cost allocation base. The budgeted allocation rate for each department is: Design - $.25 per direct labor dollar, Sewing - $2.65 per machine hour, and Embellishing - $1.10 per direct material dollar.
You are hired at the end of November and start work in the accounting department on December 1, 2013. NOTE: A subsidiary ledger will be kept for the Work-In-Process Account and the Finished Goods Account.
Requirement - Prepare the journal entries necessary to record the activity during December. Include a brief explanation for each entry. Post your entries to the General Ledger Accounts and Subsidiary Ledger Accounts. (You may find that you will need to post as you write the entries.)
December activity was as follows:
12/05 Cash was received from our customers on their accounts in the amount of $27,400.
12/10 Wages from the previous month were paid. (Current balance in Wages Payable is from last month.)
12/11 The utilities expense for the manufacturing process of $3,250 was paid in cash.
12/14 Purchased materials - $13,582 (All material purchases are made on account.)
12/23 Paid Accounts Payable from the previous month.
12/29 During December the following work was done: (Hint: You can record this all in one journal entry. Post details to each account from the total entry and be sure the WIP balance equals the total of all the subsidiary ledger balances.)
Design Sewing Embellishing
Machine
Job DM DL DM DL Hrs DM DL
10-3 $1,400 $2,000
11-1 $1,050 $2,450 24 540 840
11-2 4,000 4,800 240 2,040 1,730
12-1 $ 312 $1,500 3,840 3,320 360
12-2 240 2,132
12/31 Record depreciation expense for the year. Depreciation is calculated on a straight-line basis over 7 years with no salvage value. It is recorded in December of each year. All equipment was purchased on January 1, 2011. Of the original historical cost, $21,630 of equipment is used in manufacturing, $3,220 of the equipment is used in Selling and Administration. (Remember: part of the depreciation is product cost and some is a period cost.)
12/31 Record the use of indirect labor of $5,800.
12/31 6-months of rent, totaling $4,800, was paid in advance on September 1st for the off-site sales office space. Record the Rent Expense for the month of December. (Charge to Selling & Administrative Expense Account)
12/31 Completed jobs 10-3, 11-1, 11-2, and 12-1.
(Determine the cost from the job cost sheets.)
12/31 Sold and Delivered jobs 10-3, 11-1, and 11-2 to the customers for a total sales price of $52,340. (Assume that all sales are on account. Don't forget the matching entry for the cost and post all information to the subsidiary ledger cards. )
12/31 Selling and Administrative Expenses for supplies and miscellaneous expenses - $3,600 in cash and $4,800 on account.
12/31 Write-off all over- or under-allocated overhead to Cost of Goods Sold.
12/31 Assume an Income Tax Rate of 30% that requires an accrual of the total tax due for the year. (Round to whole dollars.) You will need to know the Operating Income here, so start putting your COGM schedule and Income Statement together.
Closing Entries:
12/31 Close all Income and Expense Accounts to Income Summary. (Two separate entries)
12/31 Close the Income or Loss to Retained Earnings. (This amount should be equal to the Net Income check figure.)
Requirement #3 - Prepare a December 31, 2013 Balance Sheet (unclassified)[See the Balance Sheet Example that I placed on Blackboard], Income Statement, and Schedule of Cost of Goods Manufactured.
Additional Information needed:
Jan 1, 2013 balances, Materials Control $ 1,120
WIP $ 4,623
FG $12,056
Purchases of materials (1/1 to 11/30) $42,816
Direct Labor Used (1/1 to 11/30) $77,320
Details of the Actual Manufacturing Overhead costs for the first 11 months:
Indirect Material $14,700
Indirect Labor 28,400
Miscellaneous 3,000
Supplies 6,230
Utilities 24,300
Total $76,630
Order for turn in: Unadjusted Trial Balance, Balance Sheet, Income Statement,
Cost of Goods Manufactured Schedule, General Journal, and Accounts.
Check figures: Total December Manufacturing Cost Added: $39,706 debit to WIP.
Cost of Goods Manufactured = $241,638
Net Income = $ 16,508
Total Assets = $ 98,616 (after all adjustments have been made)