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Pilbeam Company
Author(s):
Reece, James S.
Functional Area(s):
   Financial Accounting
Setting(s):
   For Profit
Difficulty Level: Beginner
Pages: 3
Teaching Note: Not Available. 
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First Page and the Assignment Questions:

Pilbeam Company made radio antennas, which were sold through auto supply stores and mail-order catalogs. These antennas were used by vehicle owners to replace antennas that had been vandalized or had otherwise become ineffective. Pilbeam made two models: the F-100 was used for fender mounting, and the S-100 was used for side mounting (e.g., on truck cabs).

Pilbeam used a standard cost system, which included the standards per dozen antennas shown in Exhibit 1. Materials were debited to Materials Inventory at standard cost upon receipt, any difference between the standard amount and actual invoice price being entered in the Material Price Variance account. Credits to Materials Inventory reflected the actual quantities issued, costed at standard price per unit. All debits to Work in Process Inventory were based on standard quantities and standard prices or rates. Credits to Work in Process Inventory, debits to Finished Goods Inventory, and credits to Cost of Sales were all based on the $40.12 and $40.57 full standard production costs shown above. Variance accounts were closed to the Income Summary account at the end of the month.

The following descriptions relate to April operations:

  1. On April 1, balance sheet account balances were as shown in Exhibit 2.
  2. During April, Pilbeam received materials for 2,500 dozen F-100 antennas and 1,000 dozen S-100 antennas. The invoice amounts totaled $68,550.
  3. During April, Pilbeam paid $102,300 worth of accounts payable. It collected $192,000 due from its customers. (Both Cash and Accounts Receivables are included in “All other assets” in Exhibit 2.)
  4. The stockroom issued materials during April for 3,200 dozen F-100 antennas and 700 dozen S-100 antennas, consistent with the planned production for the month. Stockroom requisitions also included issues of materials in excess of quantities needed to produce these 3,900 dozen antennas. These issues were to replace parts that had been bent or broken during the production process and were as follows: 100 dozen F-100 tubes, 20 dozen S-100 tubes, 45 dozen cables and plugs, 20 dozen F-100 mounting devices, and 4 dozen S-100 mounting devices. The original parts issued that these extra issues replaced were all thrown into the trash bin because they had no significant scrap value.
  5. Direct labor cost incurred in April was $36,150. Indirect labor cost was $20,250. Wages paid were $58,350. (Ignore social security taxes and fringe benefits.)
  6. Actual production overhead costs (excluding indirect labor) in April totaled $27,900. Of this amount, $18,750 was credited to Accounts Payable and the rest to various asset accounts (included above in “All other assets”). . . .

Assignment

  1. Set up T accounts, post beginning balances, and then record the above transactions. Adjust and close the accounts, determine April’s income (ignore income taxes), and close this income to Shareholders’ Equity. Do not create any balance sheet T accounts other than those listed above.
  2. Prepare the April income statement (again, disregarding income taxes). Why is your number for April income only an approximation?