Kam Motor Company manufactures automobiles. During September 2007 the company purchased 5,000 head lamps at a cost of $9 per lamp. Kam withdrew 4,650 lamps from the warehouse during the month. Fifty of these lamps were used to replace the head lamps in autos used by traveling sales staff. The remaining 4,600 lamps were put in autos manufactured during the month.
Of the autos put into production during September 2007, 90% were completed and transferred to the company's storage lot. Of the cars completed during the month, 75% were sold by September 30.
Determine the cost of head lamps that would appear in each of the following accounts at September 30, 2007:
Raw Materials account =
Work in Process account =
Finished Goods account =
Cost of Goods Sold account =
Selling Expenses account =
To determine the cost of head lamps in each account, we need to calculate the number of head lamps used in production, the number of head lamps remaining in each stage, and the cost associated with each transaction.
1. Raw Materials account:
- The company purchased 5,000 head lamps at a cost of $9 per lamp.
- Therefore, the cost of head lamps in the Raw Materials account is: 5,000 lamps x $9/lamp = $45,000.
2. Work in Process account:
- From the 4,650 head lamps withdrawn from the warehouse:
- 50 lamps were used to replace the head lamps in autos used by traveling sales staff.
- The remaining 4,600 lamps were put into autos manufactured during the month.
- Therefore, the cost of head lamps in the Work in Process account is: 4,600 lamps x $9/lamp = $41,400.
3. Finished Goods account:
- From the autos put into production during September 2007, 90% were completed and transferred to the company's storage lot.
- Therefore, the number of completed autos is: 4,600 lamps x 90% = 4,140.
- Of the cars completed during the month, 75% were sold by September 30. So, the number of cars sold is: 4,140 cars x 75% = 3,105 cars.
- The remaining completed autos in the Finished Goods account is: 4,140 cars - 3,105 cars = 1,035 cars.
- Since each car requires one head lamp, the cost of head lamps in the Finished Goods account is: 1,035 lamps x $9/lamp = $9,315.
4. Cost of Goods Sold account:
- The number of head lamps sold is equal to the number of completed cars sold, which is 3,105.
- Therefore, the cost of head lamps in the Cost of Goods Sold account is: 3,105 lamps x $9/lamp = $27,945.
5. Selling Expenses account:
- The selling expenses account would not include the cost of head lamps, as it accounts for expenses associated with selling activities, such as marketing, advertising, and sales commissions.
In summary:
- Raw Materials account = $45,000
- Work in Process account = $41,400
- Finished Goods account = $9,315
- Cost of Goods Sold account = $27,945
- Selling Expenses account = N/A
To determine the cost of head lamps that would appear in each of the given accounts, we need to analyze the information provided step-by-step.
1. Raw Materials account:
The Raw Materials account represents the cost of materials that have been purchased but not yet used. In this case, the head lamps purchased during September were considered as raw materials until they were used. Therefore, the cost of head lamps in the Raw Materials account would be the number of head lamps purchased (5,000) multiplied by the cost per lamp ($9):
Raw Materials account = 5,000 lamps * $9 = $45,000
2. Work in Process account:
The Work in Process account represents the cost of partially completed products. In this case, 4,600 head lamps were put into autos manufactured during September. To calculate the cost of head lamps in the Work in Process account, we need to consider the number of head lamps that were put into production and not yet completed. Since 90% of the autos put into production were completed, only 90% of the 4,600 head lamps should be included:
Work in Process account = 4,600 lamps * 90% = 4,140 lamps
3. Finished Goods account:
The Finished Goods account represents the cost of completed products that have not been sold. In this case, 75% of the completed autos were sold by September 30. Therefore, only 25% of the autos completed during September would be included in the Finished Goods account. Since each completed auto contains one head lamp, we can calculate the number of head lamps to be included in the Finished Goods account:
Finished Goods account = 4,140 lamps * 25% = 1,035 lamps
4. Cost of Goods Sold account:
The Cost of Goods Sold account represents the cost of goods that have been sold. In this case, 75% of the completed autos were sold by September 30. Therefore, the number of head lamps included in the Cost of Goods Sold account would be the difference between the total completed autos and the number of completed autos in the Finished Goods account:
Cost of Goods Sold account = 4,140 lamps - 1,035 lamps = 3,105 lamps
5. Selling Expenses account:
The Selling Expenses account represents the expenses incurred in selling products. In this case, 50 head lamps were used to replace the head lamps in autos used by traveling sales staff. The cost of these head lamps would be included in the Selling Expenses account:
Selling Expenses account = 50 lamps
Therefore, the cost of head lamps in each account at September 30, 2007, would be as follows:
Raw Materials account = $45,000
Work in Process account = 4,140 lamps
Finished Goods account = 1,035 lamps
Cost of Goods Sold account = 3,105 lamps
Selling Expenses account = 50 lamps