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	$	51,000		$	21,000
Work in process inventory		405,000			527,000
Finished goods inventory		605,000			502,000

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)		1,563,000
Other overhead cost (Other Accounts credited)		34,000
Materials used
Direct	$	200,000
Indirect		80,000
Labor used
Direct	$	780,000
Indirect		783,000
Overhead rate as a percent of direct labor		115	%
Sales (on credit)	$	6,500,000

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

Raw materials (RM)					Work in process (WIP)
					Beg bal	405,000	Trsfd	1,755,000
Beg bal	51,000	Direct M	200,000		DM used	200,000
purchases	250,000	indirect mat	80,000		DL used	780,000
					OH applied	897000
ending bal	21,000
					end bal	527,000
Factory wages payable					finished goods (FG)
cash	1,563,000	dL used	780,000		beg bal	605,000	COGS	1,858,000
		indirect la	783,000		Tsfd	1,755,000
end bal	0				end bal	502,000
Factory overhead					income statement (partial)
other	34,000	oh applied	897,000		Sales			6,500,000
indirct mat	80,000				cost of goods sold			1,858,000
indirect la	783,000				Gross margin			4,642,000
end bal	0	0
					Cost of goods transferred			1,755,000
					Cost of goods sold			1,858,000