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    The company purchases raw materials on credit, tracks raw materials and work in process in a Raw and In Process account, and charges conversion costs to Cost of Goods Sold each month. At month end: 1) Inventory balances and conversion costs are estimated. 2) Raw materials are transferred out of Raw and In Process into Finished Goods at a cost of $140,400. 3) Raw materials of $154,100 are transferred out of Finished Goods into Cost of Goods Sold. 4) Cost of Goods Sold is adjusted upward by $900 to correct for estimated conversion costs.

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    The company purchases raw materials on credit, tracks raw materials and work in process in a Raw and In Process account, and charges conversion costs to Cost of Goods Sold each month. At month end: 1) Inventory balances and conversion costs are estimated. 2) Raw materials are transferred out of Raw and In Process into Finished Goods at a cost of $140,400. 3) Raw materials of $154,100 are transferred out of Finished Goods into Cost of Goods Sold. 4) Cost of Goods Sold is adjusted upward by $900 to correct for estimated conversion costs.

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    3 views3 pages

    Untitled

    Uploaded by

    ayra napay
    The company purchases raw materials on credit, tracks raw materials and work in process in a Raw and In Process account, and charges conversion costs to Cost of Goods Sold each month. At month end: 1) Inventory balances and conversion costs are estimated. 2) Raw materials are transferred out of Raw and In Process into Finished Goods at a cost of $140,400. 3) Raw materials of $154,100 are transferred out of Finished Goods into Cost of Goods Sold. 4) Cost of Goods Sold is adjusted upward by $900 to correct for estimated conversion costs.

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    © All Rights Reserved
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    of 3

    Sample Problem with Solution:

    The Smart Manufacturing Company has a cycle time of 3.0 days, uses a Raw and In Process
    account and charges all conversion costs to the Cost of Goods Sold. At the end of each month,
    all inventories are counted, their conversion cost components are estimated and inventory
    account balances are adjusted. Raw material cost is backflushed from RIP to Finished Goods.
    The following information is for the month of June.
    Materials purchased on credit P146,000
    RIP beginning, including P4,400 of conversion costs 15,000
    RIP ending, including P7,800 of conversion costs 24,000
    FG beginning, including P10,800 of conversion costs 36,000
    FG ending, including P6,500 of conversion costs 18,000
    Conversion cost - P80,000 direct labor and P100,000 overhead

    Requirement:
    Prepare the journal entries to record the above transactions.

    Answers:
    1. Raw and In Process P146,000
    Accounts Payable P146,000

    *To record materials purchased on credit.

    2. Cost of Goods Sold P180,000


    Accrued Payroll P80,000
    FOH Applied P100,000

    *To apply conversion costs.


    *We record this entry because it is mentioned in the problem that all conversion
    costs are charged directly to Cost of Goods Sold. In this entry, we assumed that
    ALL conversion costs are sold even though it is obvious that there are still
    conversion costs left in the inventory because we still have an ending balance of
    Finished Goods which includes P6,500 OF CONVERSION COSTS. Because of
    that ending balance, we will have an adjusting entry for Cost of Goods Sold
    which is shown in journal entry #5.

    3. Finished Goods P140,400


    Raw and In Process P140,400

    *To backflush the raw materials from RIP to FG.


    *It is the RAW MATERIALS PORTION of Cost of Goods Manufactured.
    *Computation for journal entry #3:
    Raw materials in RIP beginning (15,000 - 4,400) P10,600
    Raw materials purchased 146,000
    Raw materials in RIP ending (24,000 - 7,800) (16,200)
    Raw materials in Cost of Goods Manufactured P140,400

    4. Cost of Goods Sold P154,100


    Finished Goods P154,100

    *To backflush the raw materials from FG to COGS


    *It is the RAW MATERIALS PORTION of Cost of Goods Sold
    *Computation for journal entry #4:
    Raw materials in FG beginning (36,000 - 10,800) P25,200
    Raw materials transferred from RIP to FG or the
    raw materials in Cost of Goods Manufactured 140,400
    Raw materials in FG ending (18,000 - 6,500) (11,500)
    Raw materials that were sold P154,100

    5. Cost of Goods Sold P900


    Raw and In Process (7,800 - 4,400) 3,400
    Finished Goods (10,800 - 6,500) P4,300

    *To adjust the Cost of Goods Sold since the journal entry #2 is still unadjusted.
    *Computation for journal entry #5:
    Conversion Costs applied in journal entry #2 P180,000
    Conversion cost in RIP beginning 4,400
    Conversion cost RIP ending (7,800)
    Conversion cost in Cost of Goods Manufactured P176,600
    Conversion cost in FG beginning 10,800
    Conversion cost in FG ending (6,500)
    Conversion cost in Cost of Goods Sold (adjusted amount) P180,900

    *Why debit COGS P900?


    P180,900 should be the amount of Cost of Goods Sold but we recorded
    P180,000 in journal entry #2, that’s why we have to adjust it by
    DEBITING/adding P900.

    *Why debit RIP P3,400?


    CC in RIP beg 4,400 there is an INCREASE of 3,400 that’s
    CC in RIP end 7,800 why we have to adjust RIP by
    DEBITING/ adding 3,400
    *Why credit FG P4,300?
    CC in FG beg 10,800 there is a DECREASE of 4,300 that’s
    CC in FG end 6,500 why we have to adjust FG by
    CREDITING/ subtracting 4,300

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