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	$	58,000		$	102,000
Work in process inventory		411,000			553,000
Finished goods inventory		625,000			111,001

  

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

  

Raw materials purchases (on credit)	$	290,000
Factory payroll cost (paid in cash)		1,553,000
Other overhead cost (Other Accounts credited)		117,000
Materials used
Direct	$	178,000
Indirect		68,000
Labor used
Direct	$	790,000
Indirect		763,000
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.

Raw Materials (RM

)Work in Process (WIP)

factory Payroll Payable

Finished Goods (FG)

Factory OverheadIncome Statement (partial)

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

Solution 1:

Raw materials (RM)
Particulars	Debit	Credit	Particulars
Beginning Balance, Apr 30	$58,000.00	$68,000.00	Indirect materials
RM Purchases	$290,000.00	$178,000.00	Direct materials
		$102,000.00	Ending Balance, May 31
Total	$348,000.00	$348,000.00	Total

Work In Process (WIP)
Particulars	Debit	Credit	Particulars
Beginning Balance, Apr 30	$411,000.00	$1,774,000.00	Cost of goods manufactured
Direct material	$178,000.00	$553,000.00	Ending Balance, May 31
Direct labor	$790,000.00
Overhead applied (120% of DL Cost)	$948,000.00
Total	$2,327,000.00	$2,327,000.00	Total

Finished Goods
Particulars	Debit	Credit	Particulars
Beginning Balance, Apr 30	$625,000.00	$2,287,999.00	Cost of goods sold
Cost of goods manufactured	$1,774,000.00	$111,001.00	Ending Balance, May 31
Total	$2,399,000.00	$2,399,000.00	Total

Factory Overhead
Particulars	Debit	Credit	Particulars
Indirect materials	$68,000.00	$948,000.00	Overhead applied
Indirect labor	$763,000.00
Other overheads	$117,000.00
Total	$948,000.00	$948,000.00	Total

Factory Payroll Payable
Particulars	Debit	Credit	Particulars
Cash	$1,553,000.00	$790,000.00	Work In Process
		$763,000.00	Factory overhead
Total	$1,553,000.00	$1,553,000.00	Total

Income Statement (Partial)
Sales	$3,500,000.00
Cost of goods sold	$2,287,999.00
Gross Profit	$1,212,001.00

Solution 2:

Journal Entries - Sierra Company
Event	Particulars	Debit	Credit
A	Raw material inventory Dr	$290,000.00
	To Accounts Payable		$290,000.00
	(To record purchase of raw material)
B	Work In Process Dr	$178,000.00
	To Raw material inventory		$178,000.00
	(To record raw material used in production)
C	Factory Overhead Dr	$68,000.00
	To Raw material inventory		$68,000.00
	(To record indirect material used)
D	Work In Process Dr	$790,000.00
	To Factory Wages payable		$790,000.00
	(To record direct labor cost incurred)
E	Factory overhead Dr	$763,000.00
	To Factory Wages payable		$763,000.00
	(To record indirect labor cost incurred)
F	Factory Wages Payable Dr	$1,553,000.00
	To Cash		$1,553,000.00
	(To record payment of factory payroll)
G	Factory overhead Dr	$117,000.00
	To Other Account		$117,000.00
	(To record other overhead)
H	Work In Process Dr ($790,000*120%)	$948,000.00
	To Factory Overhead		$948,000.00
	(To apply overhead to production)
I	Finished goods inventory Dr	$1,774,000.00
	To Work In Process		$1,774,000.00
	(Being completed units transferred to finished goods)
J-1	Accounts receivables Dr	$3,500,000.00
	To Sales Revenue		$3,500,000.00
	(To record sales on account)'
J-2	Cost of goods sold Dr	$2,287,999.00
	To Finished goods inventory		$2,287,999.00
	(To record cost of goods sold)