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	$	59,000		$	129,000
Work in process inventory		433,500			553,000
Finished goods inventory		628,000			553,000

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

Raw materials purchases (on credit)	$	300,000
Factory wages cost (paid in cash)		1,534,000
Other overhead cost (Other Accounts credited)		77,000
Materials used
Direct	$	164,000
Indirect		66,000
Labor used
Direct	$	780,000
Indirect		754,000
Overhead rate as a percent of direct labor		115	%
Sales (on credit)	$	2,500,000

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

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 Wages Payable Finished Goods (FG) Factory Overhead Income Statement (Partial) Cost of goods sold Cost of goods manuf. Gross profit $0 Cost of goods transferred 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

Solution 1:

Sierra Company
Schedule of direct material used in production
For the month ended May 31
Particulars	Amount
Beginning raw material inventory	$59,000.00
Add: raw material purchases	$300,000.00
Raw materials available	$359,000.00
Less: Ending raw material inventory	$129,000.00
Total raw material used	$230,000.00
Less: Indirect material used	$64,000.00
Direct material used	$166,000.00

Sierra Company
Schedule of cost of goods manufactured
For the month ended May 31
Particulars	Amount
Direct material	$164,000.00
Direct labor	$780,000.00
Applied overhead (115% of DL Cost)	$897,000.00
Total manufacturing costs	$1,841,000.00
Add: Beginning WIP	$433,500.00
Total cost of work in process	$2,274,500.00
Less: Ending WIP	$553,000.00
Cost of goods manufactured	$1,721,500.00

Sierra Company
Schedule of cost of goods Sold
For the month ended May 31
Particulars	Amount
Beginning finished goods inventory	$628,000.00
Add: Cost of goods manufactured	$1,721,500.00
Cost of goods available for sale	$2,349,500.00
Less: Ending finished goods inventory	$553,000.00
Cost of goods sold	$1,796,500.00

Therefore:

Cost of goods transferred = $1,721,500

Cost of goods sold = $1,796,500

Solution 2:

Journal Entries - Sierra Company
Event	Particulars	Debit	Credit
A	Raw material inventory Dr	$300,000.00
	To Accounts Payable		$300,000.00
	(To record purchase of raw material)
B	Work In Process Dr	$164,000.00
	To Raw material inventory		$164,000.00
	(To record raw material used in production)
C	Factory Overhead Dr	$66,000.00
	To Raw material inventory		$66,000.00
	(To record indirect material used)
D	Work In Process Dr	$780,000.00
	To Factory payroll payable		$780,000.00
	(To record direct labor cost incurred)
E	Factory overhead Dr	$754,000.00
	To Factory payroll payable		$754,000.00
	(To record indirect labor cost incurred)
F	Factory Payroll Payable Dr	$1,534,000.00
	To Cash		$1,534,000.00
	(To record payment of factory payroll)
G	Factory overhead Dr	$77,000.00
	To Other Account		$77,000.00
	(To record other overhead)
H	Work In Process Dr ($780,000*115%)	$897,000.00
	To Factory Overhead		$897,000.00
	(To apply overhead to production)
I	Finished goods inventory Dr	$1,721,500.00
	To Work In Process		$1,721,500.00
	(Being completed units transferred to finished goods)
J	Accounts receivables Dr	$2,500,000.00
	To Sales Revenue		$2,500,000.00
	(To record sales on account)'