Question

Bowen Company manufactures one product, it does not maintain any beginning or ending inventories, and its uses a standard cost system. Its predetermined overhead rate includes $1,000,000 of fixed overhead in the numerator and 50,000 direct labor-hours in the denominator. The company purchased (with cash) and used 38,000 yards of raw materials at a cost of $10.60 per yard. Its direct laborers worked 20,400 hours and were paid a total of $290,800. The company started and completed 8,900 units of finished goods during the period. Bowen’s standard cost card for its only product is as follows:

Inputs	(1) Standard Quantity or Hours		(2) Standard Price or Rate			Standard Cost (1) × (2)
Direct materials	3.8	yards	$	14.00	per yard	$	53.20
Direct labor	3.2	hours	$	14.00	per hour		44.80
Fixed manufacturing overhead	3.2	hours	$	20.00	per hour		64.00
Total standard cost per unit						$	162.00

Required:

1. When recording the raw material purchases:

a. The Raw Materials inventory will increase (decrease) by how much?

b. The Cash will increase (decrease) by how much?

2. When recording the raw materials used in production:

a. The Raw Materials inventory will increase (decrease) by how much?

b. The Work in Process inventory will increase (decrease) by how much?

3. When recording the direct labor costs added to production:

a. The Work in Process inventory will increase (decrease) by how much?

b. The Cash will increase (decrease) by how much?

4. When applying fixed manufacturing overhead to production, the Work in Process inventory will increase (decrease) by how much?

5. When transferring manufacturing costs from Work in Process to Finished Goods, the Finished Goods inventory will increase (decrease) by how much?

Answer 1

1.

a. Raw material inventory increases by $402,800 (38,000*$10.60)

b. Cash will decrease by $402,800

2.

a. Raw material inventory will decrease by $402,800

b. Work in process inventory will increase by $402,800

3.

a. Work in process inventory will increase by $290,800

b. Cash will decrease by $290,800

4.

Predetermined overhead rate = $1,000,000 / 50,000 = $20 per direct labor hour

a. Work in process inventory will increase by $408,000 (20,400*$20)

5. Finished goods inventory will increase by $1,101,600 ($402,800+290,800+408,000)