When making journal entries for a manufacturing company, you need to consider all manufacturing costs, including direct materials, direct labor, and overhead. The following practice questions ask you to make the correct journal entries for two different companies.
Practice questions
Amazing Key Chains produces and sells truly amazing devices that combine a garage door opener and a cellphone. The following costs are taken from its year-end records:
Direct materials: $42,000
Direct labor: $97,000
Overhead: $61,000
Selling expenses: $27,000
General and administrative expenses: $41,000
The company had no unfinished products at either the beginning of the year or the end of the year. The company produced 50,000 units during the year and sold 48,000 for $25 each. What journal entry did the company make when the materials were added to the production process?
Cold Pack Athletic Gear produces and sells workout shirts with built-in cold packs to soothe sore muscles. The company, which had no unfinished production at the start of the year, put $156,000 in raw materials into production. The labor necessary to produce the shirts was applied and cost $298,000. The payroll included wages paid in cash of $248,000 and $50,000 in payroll taxes. Overhead items necessary to complete the shirts cost $81,000. All shirts were finished. Sales commissions of $33,250 were paid to the sales force, who sold 95% of the finished shirts. What journal entry did the company make when paying the employees who worked in the factory?
Answers and explanations
Debit Work-in-Process Inventory and credit Raw Materials Inventory for $42,000
The company would add the cost of the materials put into production to the Work-in-Process Inventory and remove the cost from the Raw Materials Inventory.
Debit Work-in-Process Inventory for $298,000, credit Cash for $248,000, and credit Payroll Taxes Payable for $50,000
Product costs are added to Work-in-Process Inventory when they are used by the production process. Only the labor necessary to produce the shirts is a product cost, and it includes both the wages and the payroll taxes.
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