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	$	54,000		$	77,000
Work in process inventory		407,000			597,000
Finished goods inventory		615,000			521,000

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)		1,553,000
Other overhead cost (Other Accounts credited)		59,500
Materials used
Direct	$	181,000
Indirect		86,000
Labor used
Direct	$	790,000
Indirect		763,000
Overhead rate as a percent of direct labor		115	%
Sales (on credit)	$	3,500,000

The predetermined overhead rate was computed at the beginning of the year as 115% of direct labor cost.

rev: 09_05_2017_QC_CS-97362

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

Answer 1

For calculating the cost of products transferred from production to finished goods and cost of goods sold, we need to prepare all the ledgers of process costing which is shown as follows:- (Amounts in $)

Raw Materials (RM)		Work in Process (WIP)
Beg. Balance	54,000	Work in Process (direct)	181,000		Beg. Balance	407,000	Finished Goods (Bal fig)	1,689,500
Accounts Payable	290,000	Factory Overhead (indirect)	86,000		Raw Materials	181,000	Ending Balance	597,000
		Ending Balance	77,000		Factory Payroll Payable	790,000
					Factory Overhead	908,500
	344,000		344,000			2,286,500		2,286,500
Factory Payroll Payable		Finished Goods (FG)
Cash	1,553,000	Work in Process (direct)	790,000		Beg. Balance	615,000	Cost of goods sold (Bal fig)	1,783,500
		Factory Overhead (indirect)	763,000		Work in Process	1,689,500	Ending Balance	521,000
	1,553,000		1,553,000			2,304,500		2,304,500
Factory Overhead		Income Statement (Partial)
Raw Materials	86,000	Work in Process (790,000*115%)	908,500		Sales	3,500,000
Factory Payroll Payable	763,000				Less: Cost of goods sold	1,783,500
Other Accounts	59,500				Gross Margin	1,716,500
	908,500		908,500

Therefore the cost of products transferred from production to finished goods is $1,689,500 and the cost of goods sold is $1,783,500.

(As actual factory overhead and applied factory overhead are equal, there is no underapplied or overapplied factory overhead).