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	$90,000
Work in process inventory	413,500	539,000
Finished goods inventory	630,000	554,000

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)	1,565,000
Other overhead cost (Other Accounts credited)	85,000
Materials used
Direct	$175,000
Indirect	66,000
Labor used
Direct	$780,000
Indirect	785,000
Overhead rate as a percent of direct labor	120%
Sales (on credit)	$5,500,000

The predetermined overhead rate was computed at the beginning of the year as 120% 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

Solution 1:

Sierra Company
Schedule of cost of goods manufactured
For the month ended May 31
Particulars	Amount
Direct material	$175,000.00
Direct labor	$780,000.00
Applied overhead (120% of DL Cost)	$936,000.00
Total manufacturing costs	$1,891,000.00
Add: Beginning WIP	$413,500.00
Total cost of work in process	$2,304,500.00
Less: Ending WIP	$539,000.00
Cost of goods manufactured	$1,765,500.00

Sierra Company
Schedule of cost of goods Sold
For the month ended May 31
Particulars	Amount
Beginning finished goods inventory	$630,000.00
Add: Cost of goods manufactured	$1,765,500.00
Cost of goods available for sale	$2,395,500.00
Less: Ending finished goods inventory	$554,000.00
Cost of goods sold	$1,841,500.00

Solution 2:

Journal Entries - Sierra Company
Event	Particulars	Debit	Credit
A	Raw material inventory Dr	$280,000.00
	To Accounts Payable		$280,000.00
	(To record purchase of raw material)
B	Work In Process Dr	$175,000.00
	To Raw material inventory		$175,000.00
	(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	$785,000.00
	To Factory payroll payable		$785,000.00
	(To record indirect labor cost incurred)
F	Factory Payroll Payable Dr	$1,565,000.00
	To Cash		$1,565,000.00
	(To record payment of factory payroll)
G	Factory overhead Dr	$85,000.00
	To Other Account		$85,000.00
	(To record other overhead)
H	Work In Process Dr ($780,000*120%)	$936,000.00
	To Factory Overhead		$936,000.00
	(To apply overhead to production)
I	Finished goods inventory Dr	$1,765,500.00
	To Work In Process		$1,765,500.00
	(Being completed units transferred to finished goods)
J-1	Accounts receivables Dr	$5,500,000.00
	To Sales Revenue		$5,500,000.00
	(To record sales on account)'
J-2	Cost of goods sold Dr	$1,841,500.00
	To Finished goods inventory		$1,841,500.00
	(To record cost of goods sold)