Question

Required information

[The following information applies to the questions displayed below.]

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	$	65,000		$	77,000
Work in process inventory		441,500			555,000
Finished goods inventory		632,000			517,000

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

Raw materials purchases (on credit)	$	250,000
Factory wages cost (paid in cash)		1,562,000
Other overhead cost (Other Accounts credited)		38,000
Materials used
Direct	$	158,000
Indirect		80,000
Labor used
Direct	$	800,000
Indirect		762,000
Overhead rate as a percent of direct labor		110	%
Sales (on credit)	$	3,500,000

The predetermined overhead rate was computed at the beginning of the year as 110% 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) $0 Cost of goods transferred Cost of goods sold

Answer 1

Solution:

Raw materials (RM)
Particulars	Debit	Credit	Particulars
Beginning Balance, Apr 30	$65,000.00	$80,000.00	Indirect materials
RM Purchases	$250,000.00	$158,000.00	Direct materials
		$77,000.00	Ending Balance, May 31
Total	$315,000.00	$315,000.00	Total

Work In Process (WIP)
Particulars	Debit	Credit	Particulars
Beginning Balance, Apr 30	$441,500.00	$1,724,500.00	Cost of goods manufactured
Direct material	$158,000.00	$555,000.00	Ending Balance, May 31
Direct labor	$800,000.00
Overhead applied (110% of DL Cost)	$880,000.00
Total	$2,279,500.00	$2,279,500.00	Total

Finished Goods
Particulars	Debit	Credit	Particulars
Beginning Balance, Apr 30	$632,000.00	$1,839,500.00	Cost of goods sold
Cost of goods manufactured	$1,724,500.00	$517,000.00	Ending Balance, May 31
Total	$2,356,500.00	$2,356,500.00	Total

Factory Overhead
Particulars	Debit	Credit	Particulars
Indirect materials	$80,000.00	$880,000.00	Overhead applied
Indirect labor	$762,000.00
Other overheads	$38,000.00
Total	$880,000.00	$880,000.00	Total

Factory Payroll Payable
Particulars	Debit	Credit	Particulars
Cash	$1,562,000.00	$800,000.00	Work In Process
		$762,000.00	Factory overhead
Total	$1,562,000.00	$1,562,000.00	Total

Income Statement (Partial)
Sales	$3,500,000.00
Cost of goods sold	$1,839,500.00
Gross Profit	$1,660,500.00