Rexford Company manufactures finger splints for kids who get tendonitis from playing video games. The firm had the following inventories at the beginning and end of the month of January.
January 1 January 31
Finished goods $126,000 $117,000
Work in process 235,000 251,000
Raw material 134,000 124,000
The following additional manufacturing data pertains to January operations.
Raw material purchased $190,000
Direct labor 300,000
Actual manufacturing overhead 170,000
Actual selling and administrative expenses 115,000
Rexford Company applies manufacturing overhead at the rate of 60 percent of direct-labor cost. Any overapplied or underapplied manufacturing overhead is accumulated until the end of the year.
1.
Compute the company’s prime cost for January.
2.
Compute the total manufacturing cost for January.
3.
Compute the cost of goods manufactured for January.
4.
Compute the cost of goods sold for January.
5.
Compute the balance in the manufacturing overhead account on January 31. Debit or credit?
1. Prime cost includes only direct material and direct labor costs. To calculate prime cost:
Prime Cost = Direct Material Cost + Direct Labor Cost
Given:
Direct Material Cost = $190,000
Direct Labor Cost = $300,000
Prime Cost = $190,000 + $300,000 = $490,000
Therefore, the company's prime cost for January is $490,000.
2. Total manufacturing cost includes prime cost and manufacturing overhead. To calculate total manufacturing cost:
Total Manufacturing Cost = Prime Cost + Manufacturing Overhead
Given:
Prime Cost = $490,000
Manufacturing Overhead = 60% of Direct Labor Cost
Manufacturing Overhead = 60% * $300,000 = $180,000
Total Manufacturing Cost = $490,000 + $180,000 = $670,000
Therefore, the company's total manufacturing cost for January is $670,000.
3. Cost of goods manufactured represents the total cost of finished goods produced during the period. To calculate the cost of goods manufactured:
Cost of Goods Manufactured = Total Manufacturing Cost + Beginning Work in Process Inventory - Ending Work in Process Inventory
Given:
Total Manufacturing Cost = $670,000
Beginning Work in Process Inventory = $235,000
Ending Work in Process Inventory = $251,000
Cost of Goods Manufactured = $670,000 + $235,000 - $251,000 = $654,000
Therefore, the company's cost of goods manufactured for January is $654,000.
4. Cost of goods sold represents the total cost of finished goods sold during the period. To calculate the cost of goods sold:
Cost of Goods Sold = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory
Given:
Beginning Finished Goods Inventory = $126,000
Cost of Goods Manufactured = $654,000
Ending Finished Goods Inventory = $117,000
Cost of Goods Sold = $126,000 + $654,000 - $117,000 = $663,000
Therefore, the company's cost of goods sold for January is $663,000.
5. To calculate the balance in the manufacturing overhead account:
Balance in Manufacturing Overhead Account = Actual Manufacturing Overhead - Applied Manufacturing Overhead
Given:
Actual Manufacturing Overhead = $170,000
Applied Manufacturing Overhead = 60% of Direct Labor Cost = $180,000
Balance in Manufacturing Overhead Account = $170,000 - $180,000 = -$10,000
Since the actual manufacturing overhead is less than the applied manufacturing overhead, the balance in the manufacturing overhead account on January 31 is a credit of $10,000.
To answer these questions, we need to understand the different costs involved in the manufacturing process. Let me explain step by step how to calculate each of the requested figures.
1. Prime Cost:
Prime cost is the sum of direct materials used and direct labor. It does not include manufacturing overhead.
To calculate prime cost, add the direct material cost and direct labor cost:
Prime Cost = Direct Material + Direct Labor
Prime Cost = $190,000 (Raw material purchased) + $300,000 (Direct labor)
2. Total Manufacturing Cost:
Total manufacturing cost includes direct material, direct labor, and manufacturing overhead.
To calculate total manufacturing cost, multiply the direct labor cost by the manufacturing overhead rate and then add it to the sum of direct material and direct labor costs:
Total Manufacturing Cost = Direct Material + Direct Labor + Manufacturing Overhead
Manufacturing Overhead = Direct Labor * 60% (Manufacturing overhead rate)
Total Manufacturing Cost = $190,000 (Raw material purchased) + $300,000 (Direct labor) + (Direct Labor * 60%)
3. Cost of Goods Manufactured:
Cost of goods manufactured represents the total cost of finished goods produced during the period. It includes the total manufacturing cost plus the change in work in process inventory.
To calculate the cost of goods manufactured, subtract the work in process inventory at the beginning of the month from the work in process inventory at the end of the month and add it to the total manufacturing cost:
Cost of Goods Manufactured = Total Manufacturing Cost + (Work in Process Inventory - Work in Process Inventory)
Cost of Goods Manufactured = Total Manufacturing Cost + ($251,000 - $235,000)
4. Cost of Goods Sold:
The cost of goods sold represents the cost of finished goods that were sold during the period. It can be calculated by subtracting the finished goods inventory at the end of the month from the finished goods inventory at the beginning of the month and adding it to the cost of goods manufactured.
To calculate the cost of goods sold, subtract the finished goods inventory at the end of the month from the finished goods inventory at the beginning of the month and add it to the cost of goods manufactured:
Cost of Goods Sold = Cost of Goods Manufactured + (Finished Goods Inventory at the beginning of the month - Finished Goods Inventory at the end of the month)
Cost of Goods Sold = Cost of Goods Manufactured + ($126,000 - $117,000)
5. Balance in the Manufacturing Overhead account on January 31:
To calculate the balance in the manufacturing overhead account, we need to compare the actual manufacturing overhead incurred with the manufacturing overhead applied. The difference is the overapplied or underapplied manufacturing overhead.
To calculate the balance in the manufacturing overhead account, subtract the actual manufacturing overhead from the manufacturing overhead applied:
Balance in Manufacturing Overhead Account = Manufacturing Overhead Applied - Actual Manufacturing Overhead
Balance in Manufacturing Overhead Account = (Direct Labor * 60%) - $170,000
Now, you can substitute the values and calculate each of the figures accordingly.