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		$	85,000
Work in process inventory		432,000			521,000
Finished goods inventory		622,000			585,000

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

Raw materials purchases (on credit)	$	280,000
Factory wages cost (paid in cash)		1,558,000
Other overhead cost (Other Accounts credited)		76,500
Materials used
Direct	$	185,000
Indirect		64,000
Labor used
Direct	$	790,000
Indirect		768,000
Overhead rate as a percent of direct labor		115	%
Sales (on credit)	$	4,500,000

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.

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

	Beginning work in process inventory	432000
	Direct materials used in production	185000
	Direct labor used in production	790000
	Overhead applied (115% of direct labor cost)	908500
	Total production costs	2315500
	Less ending work in process inventory	521000
	Transferred to finished goods inventory	1794500
	Beginning finished goods inventory	622000
	Plus goods transferred from production	1794500
	Goods available for sale	2416500
	Less ending finished goods inventory	585000
	Cost of goods sold	1831500
		Debit	Credit
31-May	Raw materials inventory	280000
	Accounts payable		280000
31-May	Work in process inventory	185000
	Raw materials inventory		185000
31-May	Factory overhead	64000
	Raw materials inventory		64000
31-May	Work in process inventory	790000
	Factory wages payable		790000
31-May	Factory overhead	768000
	Factory wages payable		768000
31-May	Factory wages payable	1558000
	Cash		1558000
31-May	Factory overhead	76500
	Other accounts		76500
31-May	Work in process inventory	908500
	Factory overhead		908500
31-May	Finished goods inventory	1794500
	Work in process inventory		1794500
31-May	Accounts receivable	4500000
	Sales		4500000
31-May	Cost of goods sold	1831500
	Finished goods inventory		1831500