Lean Accounting

The annual budgeted conversion costs for a lean cell are $180,000 for 2,000 production hours. Each unit produced by the cell requires 18 minutes of cell process time. During the month, 550 units are manufactured in the cell. The estimated materials costs are $32 per unit. Provide the following journal entries:

a. Materials are purchased to produce 600 units.

b. Conversion costs are applied to 550 units of production.

c. 500 units are completed and placed into finished goods.

a. Raw and In Process Inventory

Accounts Payable

b. Raw and In Process Inventory

Conversion Costs

c. Finished Goods Inventory

Raw and In Process Inventory

Lean Accounting

Journal Entries

Sr. No Particulars Debit Credit

a. Raw Materials $ 19200

Accounts Payable $19200

Materials of $32 * 600 units = $ 19200 are purchased on accounts.

a. Work in Process $ 19200

Raw Materials Inventory $ 19200

Raw Materials of $ 19200 are put to production

b. Conversion Costs Rate = $ 180,000 / 2000 = $ 90 per hour

No of hours required for 550 units = 18 * 550/3600 = 9900/60 = 165 hours

Conversion Costs for 550 units = $90 * 165 = $ 14850

Work In Process Inventory $14850

Raw Materials Inventory $ 14850

As we are unsure of the Manufacturing Overheads all the amounts is debited Raw materials inventory assuming all production hours were direct labor hours.

c. Finished Goods $ 29500

Work In Process $29500

All the completed units 500 are transferred to Finished Goods inventory.

Calculation of Finished Goods Inventory Costs.

Materials = 500 * $32 = $ 16000

Conversion Costs = 500 units * 18 mins / 60 = 150 hours * $ 90 = $ 13500

Total = $16000 + $13500 = $29500