Question

Stefan Ceramics is in the business of selling ceramic vases. It has two​ departments, molding and finishing. Molding department purchases tungsten carbide and produces ceramic vases out of it. Ceramic Vases are then transferred to finishing​ department, which designs it as per the requirement of the customers. During the month of​ July, molding department purchased 720 kgs of tungsten carbide at​ $280 per kg. It started manufacture of​ 4,200 vases and completed and transferred​ 3,800 vases during the month. It has 400 vases in the process at the end of the month. It incurred direct labor charges of​ $1,500 and other manufacturing costs of​ $1,300, which included electricity costs of​ $300. Stefan had no inventory of tungsten carbide at the end of the month. It also had no beginning inventory of vases. The ending inventory was​ 50% complete in respect of conversion costs. Which of the following journal entry would record the tungsten carbide purchased and used in production during​ July?

Answer 1

Answer:

The following entries would be made.

Stefan Ceramics

Sr. No                Particulars                 Debit                 credit

1               Merchandise Inventory      291600

                Accounts Payable/ Cash                                    291600

For purchase of  720 kgs of tungsten carbide at​ $280 per kg (720*280=291600)

Accounts Payable or cash depending on whether material was purchased for cash or through accounts payable( creditors).

2                 Work In Process               291600  Dr

                                 Merchandise Inventory      291600 Cr

For use of  720 kgs of tungsten carbide . As there is no ending inventory the whole of the material is charged to production.