Question

Pro-Weave manufactures stadium blankets by passing the products through a weaving department and a sewing department. The following information is available regarding its June inventories:

	Beginning Inventory			Ending Inventory
Raw materials inventory	$	146,000		$	217,000
Work in process inventory—Weaving		340,000			380,000
Work in process inventory—Sewing		725,000			940,000
Finished goods inventory		1,416,000			1,456,000

The following additional information describes the company’s manufacturing activities for June:

Raw materials purchases (on credit)	$	670,000
Factory payroll cost (paid in cash)		3,500,000
Other factory overhead cost (Other Accounts credited)		208,000
Materials used
Direct—Weaving	$	280,000
Direct—Sewing		78,000
Indirect		126,000
Labor used
Direct—Weaving	$	1,400,000
Direct—Sewing		425,000
Indirect		1,675,000
Overhead rates as a percent of direct labor
Weaving		80	%
Sewing		150	%
Sales (on credit)	$	5,100,000

1. Compute the (a) cost of products transferred from weaving to sewing, (b) cost of products transferred from sewing to finished goods, and (c) cost of goods sold.
2. Prepare journal entries dated June 30 to record (a) goods transferred from weaving to sewing, (b) goods transferred from sewing to finished goods, (c) sale of finished goods, and (d) cost of goods sold.
3. Prepare journal entries dated June 30 to record: (a) raw materials purchases, (b) direct materials usage, (c) indirect materials usage, (d) direct labor usage, (e) indirect labor usage, (f) other overhead costs, (g) overhead applied, and (h) payment of total payroll costs.

Answer 1

A. cost of products transferred from weaving to sewing:

Cost sheet of Pro-Weave (Weaving)
Particulars	Amount (Weaving)
Opening stock of raw materal	146000
Add: Purchase during the year	670000
	816000
Less: Closing stock of raw material	217000
Raw material consumed	599000
Add: Factory expenses
Factory Payroll	2684931
Direct material used	280000
Direct Labour used	1400000
Overheads
(1400000*80%)	1120000
Total factory expenses	6083931
Add: opening stock of WIP	340000
Less: closing stock of WIP	380000
Total factory Cost of Weaving	6043931
Add: Indirect material	98547
Add: Indirect Labour	1284930
Total cost of productionof Weaving	7427408

Weaving is transferring Rs. 7427408 to Sewing.

B.& C. cost of products transferred from sewing to finished goods, and (c) cost of goods sold.

Cost sheet of Pro-Weave (Sewing)
Particulars	Amount (Sewing)
Cost transferred from Weaving	7427408
Direct material used	425000
Direct Labour used	78000
Overheads
78000*150%)	117000
Other factory overheads	208000
Total Factory cost	8255408
Add: opening stock of WIP	725000
Less: closing stock of WIP	940000
Total factory Cost of Sewing	8040408
Add: Indirect material	27453
Add: Indirect Labour	390070
Total cost of product transferred to Finished Goods	8457931
Add:Opening stock of finished goods	1416000
less: Closing stock of finished goods	1456000
Total Cost of Goods Sold	8417931

Important working notes:

Note 1:Calculation of Factory payroll is based on Direct Labor Ratio

Weaving: 3500000*1400000/1825000 = 2684931

Sewing: 3500000*425000/1825000 = 815069

Note 2:Calculation of Indirect Labour is based on Direct Labor Ratio

Weaving: 1675000*1400000/1825000 = 1284930

Sewing: 3500000*425000/1825000 = 390070

Note 3:Calculation of Indirect Materialis based on Direct Material Ratio

Weaving: 126000*280000/358000 = 98547

Sewing: 126000*78000/358000 = 27453

B. Journal Entries:

Journal Entries
Particulars	Amount (Dr)	Amount (Cr)
Sewing Account     Dr	7427408
To Weaving Account		7427408
(Goods of amount Rs. 7427408 transferred to Sewing from Weaving)
Finished Goods Account   Dr	8457931
To Sewing Account		8457931
(Goods of amount Rs. 8457931 transferred to Finished goods from Sewing
FinishedGoods Account   Dr	5100000
To sales account		5100000
(Sale of finished goodson credit of Rs. 5100000)
Material Account Dr.	8417931
To Cost of goods sold account		8417931
(Cost of goods sold transferred to material account)

C. Journal Entries:

Journal Entries
Date	Particulars	Amount (Cr)	Amount (Cr)
Jun-30	Purchase Account    Dr	670000
	To material Account		670000
Jun-30	Direct Material Account   Dr.	358000
	To Weaving Account		280000
	To Sewing Account		78000
Jun-30	Indirect Material Account   Dr.	126000
	To Weaving Account		98547
	To Sewing Account		27453
Jun-30	Direct Labour Account   Dr.	1825000
	To Weaving Account		1400000
	To Sewing Account		425000
Jun-30	Indirect Labour Account   Dr.	1675000
	To Weaving Account		1284930
	To Sewing Account		390070
Jun-30	Overhead Account Dr.	208000
	To Factory Cost Account		208000
Jun-30	Cost of prodcution account Dr.	8417931
	To cash Account		8417931