Question

Eagle Co. manufactures bentwood chairs and tables. Wood for both products is steam-bent in the same process, but different types of wood are used for each product. Thus, materials cost is identified separately to each product. One production cycle uses 20 board feet. Labor cost is identified to the process as a whole, as is overhead cost. Data for the month of July follow:

Chairs Tables
Direct material cost per board foot $3.60 $4.20
Number of parts formed per production cycle (20 board feet) 10 8
Actual operating hours in July 120 380
Parts produced during July 4,000 9,000
Budgeted annual conversion cost:
Labor $150,000
Utilities 125,000
Depreciation 65,000
Other overhead 50,000
Total $390,000

Budgeted annual operating hours for steam-bending 5,200

Required:
a. Compute July's predetermined rate for the steam-bending process.
b. Compute July's direct material costs for chairs and tables.
c. Compute conversion costs to be applied to chairs and tables in July. In your calculations, round the per unit amount to two decimal places and use in subsequent computations.
d. Journalize the following entries:

1. Assignment of direct materials to chairs and tables.
2. Application of conversion costs to chairs and tables.
3. The transfer of completed chairs and tables to the Finishing Department. All of July's production was completed in July

Answer 1

A. $75

B. Direct material costs for Chairs = $28,800

Direct material costs for Tables= $94,500

C. Conversion costs for Chairs = $9,000

Conversion costs for Tables = $28,530

D1. Dr Work in process-chairs 28,800

Dr Work in process-tables 94,500

Cr Materials 123,300

D2. Dr Work in process-chairs 9,000

Dr Work in process-tables 28,530

Cr Conversion costs applied 37,530

D3. Dr Finished Goods-Chairs 37,800

Cr Finished Goods- Tables 123,030

Dr Work in process 37,800

Cr Work in process 123,030

Step-by-step explanation:

a. Computation of July's predetermined rate

Steam-bending process predetermined rate=

390,000 / 5,200

Steam-bending process predetermined rate= $75

b. Computation for July's direct material costs for both chairs and tables.

Direct material costs for Chairs= 3.60 x 20 / 10 Direct material costs for Chairs= 7.20

Direct material costs for Chairs=7.20x 4,000

Direct material costs for Chairs = $28,800

Direct material costs for Tables=4.20 x 20 / 8

Direct material costs for Tables= 10.50

Direct material costs for Tables=10.50 x 9,000 Direct material costs for Tables= $94,500

c. Computation for conversion costs to be applied to chairs and tables in July

Conversion costs for Chairs: 75 x 120 / 4,000

Conversion costs for Chairs = 2.25

Conversion costs for Chairs=2.25 x 4,000

Conversion costs for Chairs = $9,000

Conversion costs for Tables= 75 x 380/9,000

Conversion costs for Tables =3.17

Conversion costs for Tables=3.17x 9,000

Conversion costs for Tables = $28,530

D1. Preparation of Journal entry for the Assignment of direct materials to chairs and tables.

Dr Work in process-chairs 28,800

Dr Work in process-tables 94,500

Cr Materials 123,300

(94,500+28,800)

D2. Preparation of Journal entry for the Application of conversion costs to chairs and tables.

Dr Work in process-chairs 9,000

Dr Work in process-tables 28,530

Cr Conversion costs applied 37,530

(28,530+9,000)

D3. Preparation of the Journal entry for the Th transfer of completed chairs and tables to the Finishing Department

Dr Finished Goods-Chairs 37,800

(28,800+9,000)

Cr Finished Goods- Tables 123,030

(94,500+28,530=123,030)

Dr Work in process 37,800

(28,800+9,000)

Cr Work in process 123,030

(94,500+28,530=123,030)