Sierra Company manufactures woven blankets and accounts for product costs using

Question

Sierra Company manufactures woven blankets and accounts for product costs using process costing. The company uses a single processing department. The following information is available regarding its May inventories. Raw Materials inventory beginning 60,000, ending inventory 92,500, work in process 435,000 ending 515,000 finished goods inventory 633,000 and ending 605,000. the following additional information describes the company's production activities for May. Raw materials purchases on credit 250,000, factory payroll cost paid in cash 1,530,000, other overhead cost othe accounts credited 87,000, materials used direct 157,500, indirect 60,000, labor used direct 780,000, indirect 750,000, overhead rate as a percent of direct labor 115%, sales on credit 2,500,000. 1. Compute the cost of (a) products transferred from production to finished goods, and (b) 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, (e) indirect labor costs, (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.

Explanation / Answer

Account Title and explanations Debit ($) Credit ($) Raw material inventory        2,50,000 Accounts Payable        2,50,000 (raw materials purchases recorded) Work in Process (60000+250000-92500)        1,57,500 Raw Material Inventory        1,57,500 (direct materials usage) Manufacturing Overhead 60000 Raw Material Inventory 60000 (indirect Material usage) Work In Process 780000 Factory payroll expenses 780000 direct wages) Manufacturing Overhead 750000 Factory payroll expenses 750000 ( indirect wages) Factory payroll expenses 153000 Cash 1530000 (factory payroll expenses paid) Manufacturing overhead 87000 Cash 87000 (other overhead expense paid) Work in process (115% x 780000) 897000 Manufacturing Overhead 897000 (overhead applied) Finished Goods 1834500 Work In Process 1834500 (goods finished transferred to finished goods account) Accounts receivable 2500000 Sales 2500000 (goods finished sold on account) Cost of goods sold 1834500 Finished Goods 1834500 (Cost of goods sold recorded)

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