Question

Kimberly’s fashionable friends always bought the newest, trendiest jeans, and ended up with too many "old" pairs occupying precious closet space. Kimberly used her smarts and came up with a cool idea: encourage people to donate their jeans, or sell them to her for a nominal amount, and she would then rework them into snazzy jean jackets. Behold: Snazzy Inc. was born. But while Kimberly is blessed with creativity and sewing skills, she needs help organizing and summarizing her business costs. Some transactions that Kimberly engaged in this year, in no particular order, are as follows. 1. Purchased a new sewing machine for $2,200, with an estimated life of 5 years, used exclusively for her business. 2. Purchased thread, buttons, and patches for $290—all of which were used up this year. 3. Purchased new jeans for $960 and collected donated jeans from friends. 4. Paid friend $1,790 to help cut and sew the jackets together. 5. Finished making many jackets and sold all but one of them, and its total cost is $80. 6. Started the year with several completed jackets waiting to be sold; the combined cost of these was $400. 7. Paid $360 to ship three batches of jackets across the country as part of the sales transaction. 8. Paid $330 to run a series of ads in online channels. 9. Finished making all jackets she started except for one, which is still attached to the sewing machine, half-finished; it has an estimated cost so far of $30. 10. Began the year with no jackets in the partially completed stage. 11. Counted 40 pairs of jeans still waiting to be transformed at year-end; the cost of these is estimated at $120.

Create T-accounts for RM Inventory, WIP Inventory, FG Inventory, and COGS. Enter any appropriate beginning balances and record any amounts that would have been debited or credited to these accounts during the year. Lastly, determine ending balances for all four accounts.

Answer 1

Kimberly can organize her business costs by using T-accounts for RM Inventory, WIP Inventory, FG Inventory, and COGS. The ending balance for RM Inventory is $1,080, WIP Inventory is $30, FG Inventory is $480, and COGS is $2,740, with various transactions affecting each account.

Step-by-step explanation:

To provide Kimberly with an organized summary of her business costs, we'll start by setting up T-accounts for Raw Materials (RM) Inventory, Work-In-Process (WIP) Inventory, Finished Goods (FG) Inventory, and Cost of Goods Sold (COGS). Each account will record transactions affecting that account during the year, starting with any beginning balances. Here's how we'll record the transactions:

• RM Inventory: Begins with no balance as there's no mention of a starting inventory. We add the cost of new jeans ($960) and end with jeans still available ($120), making the ending balance $1,080.
• WIP Inventory: It begins with no balance as there are no partially completed jackets at the beginning of the year. We record the expenses related to the uncompleted jacket still attached to the machine ($30).
• FG Inventory: Begins with $400 (completed jackets from the prior year). We add the cost of all jackets that Kimberly completed and sold during the year except for one, which costs $80.
• COGS: This account records the cost of goods that have been sold. The cost associated with materials used immediately, such as thread, buttons, and patches ($290), labor costs ($1,790), and shipping costs as part of the sales transaction ($360) will be included here. COGS will also include the cost of finished goods sold, except for the one jacket remaining which is $400 (beginning inventory) + all costs except for the $80 (remaining unsold) and $120 (unsold jeans).

Let's calculate the end balances:

• RM Inventory: $960 (purchase of new jeans) + $120 (cost of jeans still available) - $0 (beginning balance) = $1,080 (ending balance).
• WIP Inventory: $0 (beginning balance) + $30 (cost of the uncompleted jacket) - $0 (sales) = $30 (ending balance).
• FG Inventory: $400 (beginning balance) + ($80 cost of one unsold jacket) - $0 (sales since no additional FG cost was added for the year) = $480 (ending balance).
• COGS: $290 (materials used up) + $1,790 (labor) + $360 (shipping) + $400 (cost of starting FG sold) - $80 (unsold jacket) - $120 (unsold jeans) = $2,740.

Therefore, the ending balance for RM Inventory is $1,080, WIP Inventory is $30, FG Inventory is $480, and COGS is $2,740.