Question

Munoz Corporation builds sailboats. On January 1 , Year 3 , the company had the following account balances: $70,000 for both cash and common stock. Boat 25 was started on February 10 and finished on May 31. To build the boat, Munoz had incurred cash costs of $5,600 for labor and $5,650 for materials. During the same period, Munoz paid $7,260 cash for actual manufacturing overhead costs. The company expects to incur $169,000 of indirect overhead cost during Year 3 . The overhead is allocated to jobs based on direct labor cost. The expected total labor cost for the year is $130,000. Munoz uses a just-in-time inventory management system. Consequently, it does not have raw materials inventory. Raw materials purchases are recorded directly in the Work in Process Inventory account. Required Use the horizontal financial statements model, to record Munoz's business events. The first row shows beginning balances.

Answer 1

Munoz Corporation's accounting for the construction of Boat 25 includes direct material and labor costs and the application of manufacturing overhead based on an allocation rate determined by total expected indirect overhead costs and total expected labor costs.

Step-by-step explanation:

The Munoz Corporation's transaction involves recording the business events associated with building Boat 25 in a horizontal financial statements model. The company had a starting balance of $70,000 for both cash and common stock on January 1, Year 3. The costs to build Boat 25 included $5,600 for labor, $5,650 for materials, and $7,260 for actual manufacturing overhead costs paid in cash. They expect total indirect overhead costs of $169,000 and total labor costs of $130,000 for the year, which will be used to allocate overhead costs to jobs. The overhead allocation rate can be computed by dividing the expected overhead costs by the expected total labor costs ($169,000 / $130,000). The entry to record the cost of Boat 25 would include debits to Work in Process Inventory for labor and materials costs and a credit to Cash for the sum of these costs. Additionally, a debit for applied manufacturing overhead (based on the allocated rate) would be entered, with a corresponding credit to Manufacturing Overhead.