Question

Smith Company manufactures lawn mowers. The firm had the following inventories.

          Jan 1, 2018     Dec 3, 2018

                        Finished goods                        $142,000         $ 92,000

                        Work in process                      $262,000         $426,000

                        Materials                                 $114,000         $ 90,000

            The following additional manufacturing data pertains to operations.

            Material purchased                 $150,000         Property Taxes Factory           $ 7,500

            Direct labor                             $400,000         Utilities-Factory                      $15,000

            Depreciation-Factory Equip   $ 25,000         Insurance-Factory                   $ 4,500

            Factory Supervisor Salaries    $227,500         Selling and Admin Expense   $200,000

Alex Company applies manufacturing overhead at the rate of 60 percent of direct-labor cost.

            Required:

            Compute the following amounts for the year of 2018.

-Alex Company’s direct materials cost.
-Alex Company’s total manufacturing costs for 2018.
-Alex Company’s cost of goods manufactured.
-Alex Company’s cost of goods sold (before disposing of under/over-applied overhead).
-Assume Alex Company wants to achieve a Gross Profit of 30% of Sales -- Compute the total dollar amount of Sales needed.
-Show Alex Company's Income Statement
-Was overhead under or over applied and by how much?
-What effect, if any, will the amount in h have on net income. Explain and show the computation.
-Why does overhead need to be applied? Explain.
-If Alex estimated overhead for the year to be $252,000, what amount was the original estimate for direct labor cost?

Answer 1

Solution:

Part A -- Alex Company’s direct materials cost = $174,000

Cost of Direct Materials used in production
Beginning Inventory - Direct Materials	$114,000
Plus: Materials Purchased	$150,000
Less: Ending Inventory - Direct Materials	-$90,000
Cost of Direct materials used in production	$174,000

B. Alex Company’s total manufacturing costs for 2017 = $814,000

Total Manufacturing Costs	$$
Cost of Direct materials used	$174,000
Plus: Direct Labor	$400,000
Plus: Applied Manufacturing Overhead (60% of Direct Labor Cost 400,000)	$240,000
Total Manufacturing Costs	$814,000

C. Alex Company’s cost of goods manufactured = $650,000

Cost of goods manufactured	$$
Total Manufacturing Costs	$814,000
Plus: Beginning Work In Process	$262,000
	$1,076,000
Less: Ending Work in Process	-$426,000
Cost of Goods manufactured	$650,000

D. Alex Company’s cost of goods sold (before disposing of under/over-applied overhead) = $700,000

Cost of Goods Sold (before disposing of under/over-applied overhead)	$$
Cost of Goods manufactured	$650,000
Plus: Beginning Finished Goods Inventory	$142,000
Total Cost of Goods Available for sale	$792,000
Less: Ending Finished Goods Inventory	-$92,000
Cost of Goods Sold	$700,000

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Pls ask separate question for remaining parts