Question

Sierra Company manufactures woven blankets and accounts for product costs using process costing. Data below are for one of its processing departments. The following information is available regarding its May inventories

	Beginning Inventory	Ending Inventory
Raw materials inventory	$57,000	$98,000
Work in process inventory	444,000	579,000
Finished goods inventory	616,000	557,000

The following additional information describes the company's production activities for May.

Raw materials purchases (on credit)	$290,000
Factory wages cost (paid in cash)	1,589,000
Other overhead cost (Other Accounts credited)	79,000
Materials used
Direct	$179,000
Indirect	70,000
Labor used
Direct	$790,000
Indirect	799,000
Overhead rate as a percent of direct labor	120%
Sales (on credit)	$3,500,000

The predetermined overhead rate was computed at the beginning of the year as 120% of direct labor cost.

Required:

1. Compute the cost of products transferred from production to finished goods and cost of goods sold.

2. Prepare summary journal entries dated May 31 to record the following production activities during May: (a) raw materials purchases, (b) direct materials usage, (c) indirect materials usage, (d) direct labor costs incurred, (e) indirect labor costs incurred, (f) payment of factory payroll, (g) other overhead costs, (h) overhead applied, (i) goods transferred from production to finished goods, and (j) sale of finished goods.

Answer 1

1.

Cost of products transferred to finished goods and cost of goods sold
Beginning raw material inventory	$57,000
Raw material purchases	290,000
Ending raw material inventory	(98,000)
Raw material used	249,000
Less: Indirect material used	(70,000)
Direct material used	179,000
Direct labor	790,000
Applied overhead (790,000*120%)	948,000
Total manufacturing cost	$1,917,000
Beginning work in process inventory	444,000
Ending work in process inventory	(579,000)
Cost of product transferred to finished goods	1,782,000
Beginning finished goods inventory	616,000
Ending finished goods inventory	(557,000)
Cost of goods sold	$1,841,000

2.

	General Journal	Debit	Credit
a.	Raw material inventory	$290,000
	Accounts payable		$290,000
b.	Work in process	$179,000
	Raw material inventory		$179,000
c.	Factory overhead	$70,000
	Raw material inventory		$70,000
d.	Work in process	$790,000
	Factory payroll		$790,000
e.	Factory overhead	$799,000
	Factory payroll		$799,000
f.	Factory payroll	$1,589,000
	Cash		$1,589,000
g.	Factory overhead	$79,000
	Other accounts		$79,000
h.	Work in process	$948,000
	Factory overhead		$948,000
i.	Finished goods	$1,782,000
	Work in process		$1,782,000
j.	Accounts receivable	$3,500,000
	Sales		$3,500,000
	Cost of goods sold	$1,841,000
	Finished goods		$1,841,000