Milton Company Makes T-Shirts

question 125

Essay

Milton Company makes t-shirts.The shirts move through two departments during the production process.First,fabric is cut in the Cutting Department.The fabric pieces are then transferred to the Sewing Department where the shirts are assembled.The shirts are then sold to retail chains such as Wal-Mart and K-Mart.The following transactions apply to the company's operations during the current accounting period,which is its first year of operations,2014:
(a)Issued stock to shareholders for cash,$90,000.
(b)Purchased $30,000 of direct raw materials.
(c)Direct materials issued to the cutting and sewing departments,$10,000 and $2,000,respectively.
(d)Paid labor cost of $24,400.Direct labor usage for the cutting and assembly departments was $14,000 and $8,000,respectively.Indirect labor costs amounted to $2,400.
(e)Paid other overhead costs,$4,000.
(f)Applied overhead to production in both departments using the predetermined overhead rate of $0.30 per direct labor dollar.
(g)Transferred $21,000 of inventory from the Cutting Department to the Sewing Department.
(h)Transferred $30,400 of inventory from the Sewing Department to Finished Goods.
(i)Sold inventory costing $16,000 for $25,000 cash.
(j)Paid selling and administrative expenses,$5,000.
(k)Disposed of any underapplied or over-or-under-applied overhead.
Assume that all transactions are for cash unless otherwise stated.
Required:
1)Record the transactions in the T-accounts provided.
2)Prepare a schedule of cost of goods manufactured and sold.
3)Compute the amount of gross margin that will be reported on the firm's year-end income statement.

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Definitions:

Sales Tax Payable

A liability account that records the amount of sales tax collected from customers, which is owed to the government.

Normal Balance

Represents the side (debit or credit) of an account that increases its value, based on the double-entry accounting system.

Debit

An accounting entry that increases an asset or expense account, or decreases a liability or equity account.

Cash Discount Period

A specific time frame during which a buyer can pay less than the full amount due by taking advantage of a discount offered.