Q24E - Horngren'S Financial And Managerial Accounting

Question

Refer to the data and your answers from Exercise E18-23.

Requirements

1. Prepare the journal entries to record the assignment of direct materials and direct labor and the allocation of manufacturing overhead to the Fermenting Department. Assume labor costs are accrued and not yet paid. Also prepare the journal entry to record the cost of the gallons completed and transferred out to the Packaging Department.

2. Post the journal entries to the Work-in-Process Inventory—Fermenting T-account. What is the ending balance?

3. What is the average cost per gallon transferred out of the Fermenting Department into the Packaging Department? Why would Shea Winery’s managers want to know this cost?

Step-by-Step Solution

Answer

1. The journal entries record the assignment of the direct material costing $9,288 and direct labor of $3,305, allocation of manufacturing overhead of $3,378, and the cost of completed and transferred out gallon, i.e., $14,852 is done in step 2.

2. The ending balance of the work-in-process inventory account is $2,064.

3. The average cost per gallon transferred out of the fermenting department into the packaging department is $1.88.

The company’s management compute this cost to decide the selling price of the product after adding the profit margin.

Step-by-Step Solution: Step 1: Work-in-process Inventory

Work-in-process inventory means the inventory which is partially completed through the process at the end of the reporting period. It is classified as the current assets on the balance sheet.

Step 2: Journal entries

Date	Particulars	Debit ($)	Credit ($)
	Work-in-process inventory	9,288
	Direct material		9,288
	Work-in-process inventory	3,305
	Wages payable		3,305
	Work-in-process inventory	3,378
	Manufacturing overhead		3,378
	Finished goods inventory	14,852
	Work-in-process inventory		14,852

Step 3: Work-in-process inventory – Fermenting T-account

Particulars	Amount ($)	Particulars	Amount ($)
Beginning balance:		Finished goods inventory	14,852
Direct materials	540
Direct labor	195
Manufacturing overhead	210
Cost added during March
Direct material	9,288
Direct labor	3,305
Manufacturing overhead	3,378
		Ending balance	2,064

Step 4: Average cost per gallon transferred out of the blending department into the packaging department

$$\begin{gathered} \mathbf{Average}\mathbf{ }\mathbf{cost}\mathbf{ }\mathbf{per}\mathbf{ }\mathbf{gallon}\mathbf{=}\frac{\mathrm{Total} \mathrm{cost} \mathrm{of} \mathrm{the} \mathrm{completed} \mathrm{goods}}{\mathrm{Number} \mathrm{of} \mathrm{units}} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\frac{\$14,852}{7,900} \\ \mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{ }\mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{.}\mathbf{88}\text{} \end{gathered}$$

The manager of Shea Winery wants to know this cost to decide the product's selling price. The selling price is above the total cost of the product.