PROBLEM 4-32 Coronado Wings, Inc.

Question Description

Coronado Wings, Inc. manufactures airplanes for use in stunt shows. Coronado’s factory is highly automated, using the latest in robotic technology. To keep costs low, the company employs as few factory workers as possible. Since each plane has different features (such as its shape, weight, and color), Coronado uses a job order costing system to accumulate product costs.

At the end of 2016, Coronado’s accountants developed the following expectations for 2017 based on the marketing department’s sales forecast:

Budgeted overhead cost		$1,101,000
Estimated machine hours		53,000
Estimated direct labor hours		9,000
Estimated direct materials cost		$1,500,000

Coronado’s inventory count, completed on December 31, 2016, revealed the following ending inventory balances:

Raw Materials Inventory		$249,000
Work in Process Inventory		$625,000
Finished Goods Inventory		$1,470,000

The company’s 2017 payroll data revealed the following actual payroll costs for the year:

Job Title	Number Employed	Wage Rate per Hour	Annual Salary per Employee	Total Hours Worked per Employee
President and CEO	1		$228,000
Vice president and CFO	1		$178,000
Factory manager	1		$41,000
Assistant factory manager	1		$31,300
Machine operator	5	$14.5		2,250
Security guard, factory	2		$20,500
Forklift operator	2	$7.5		2,000
Corporate secretary	1		$36,200
Janitor, factory	2	$6		2,150

The following information was taken from Coronado’s Schedule of Plant Assets. All assets are depreciated using the straight-line method.

Plant Asset	Purchase Price	Salvage Value	Useful Life
Factory building	$4,000,000	$150,000	20 Years
Administrative office	$650,000	$125,000	30 Years
Factory equipment	$2,000,000	$20,000	12 Years

Other miscellaneous costs for 2017 all paid in cash included:

Cost		Amount
Factory insurance (fully expired)		$14,000
Administrative office utilities		$5,700
Factory utilities		$32,000
Office supplies (fully consumed)		$5,200

Additional information about Coronado’s operations in 2017 includes the following:

•	Raw materials purchases for the year amounted to $1,945,000. All materials were purchased on account.
•	The company used $1,860,000 in raw materials during the year. Of that amount, 85% was direct materials and 15% was indirect materials.
•	Coronado applied overhead to Work in Process Inventory based on direct materials cost.
•	Airplanes costing $3,450,000 to manufacture were completed and transferred out of Work in Process Inventory.
•	Coronado uses a markup of 80% to price its airplanes. Sales for the year were $6,570,000. All sales are made on account. (Note: This transaction requires two journal entries.)

(a)


	Your answer is incorrect. Try again.

What was Coronado’s predetermined overhead rate in 2017? (Round answer to 2 decimal places, e.g. 52.75%.)

Predetermined overhead rate

% of direct materials cost

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(b)

Prepare the journal entries to record Coronado’s costs for 2017. (Use Salaries Payable and Wages Payable accounts for payroll costs.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually. Post entries in order presented in the problem. Round answers to 0 decimal places, e.g. 5,275.)

No.	Account Titles and Explanation	Debit	Credit
1.

	(To record salaries for president, vice president, and corpoarte secretary)
2.

	(To record salaried factory worker costs)
3.


	(To record hourly factory worker costs)
4.

	(To record depreciation on administrative office equipment)
5.

	(To record depreciation on factory building and equipment)
6.


	(To record administrative office utilities and office supplies expense)
7.

	(To record factory insurance and factory utilities)
8.

	(To record raw materials purchases)
9.


	(To record direct materials and indirect materials used in production)
10.

	(To apply overhead to work in process)
11.

	(To record transfer of completed airplanes)
12.

	(To record sale of airplanes to customers)
13.

	(To record cost of airplanes sold)

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