Process Costing Journal Entries. Silva Piping Company produces PVC piping in two

Question

Process Costing Journal Entries. Silva Piping Company produces PVC piping in two processing departments—Fabrication and Packaging. Transactions for the month of July are shown as follows.

1. Direct materials totaling $15,000 are requisitioned and placed into production—$7,000 for the Fabrication department and $8,000 for the Packaging department.

2. Direct labor costs (wages payable) are incurred by each department as follows: Fabrication $4,500 Packaging $6,700

3. Manufacturing overhead costs are applied to each department as follows: Fabrication $20,000 Packaging $14,000

4. Products with a cost of $22,000 are transferred from the Fabrication department to the Packaging department.

5. Products with a cost of $35,000 are completed and transferred from the Packaging department to the finished goods warehouse.

6. Products with a cost of $31,000 are sold to customers.

Required: 1. Prepare journal entries to record each of the previous transactions. 2. In general, how does the process costing system used here differ from a job costing system?

Explanation / Answer

Answer. 1 Silva Piping Company Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 WIP Inventory - Fabrication                     Dr.           7,000 WIP Inventory - Packaging                       Dr.           8,000    To Raw Material Inventory              15,000 (Direct material are issued to Deptt.) 2 WIP Inventory - Fabrication                     Dr.           4,500 WIP Inventory - Packaging                       Dr.           6,700    To Wages Payable              11,200 (Labour Cost incurred by the deptt.) 3 WIP Inventory - Fabrication                     Dr.        20,000 WIP Inventory - Packaging                       Dr.        14,000    To Manufacturing Overhead              34,000 (Manufacturing Ovehead allocated to the deptt.) 4 WIP Inventory - Packaging                       Dr.        22,000    To WIP Inventory - Fabrication                      22,000 (WIP transferred from Fabrication to packaging Deptt.) 5 Finished Goods Inventory                       Dr.        35,000    To WIP Inventory - Packaging                            35,000 (Goods completed and transferred to finished Goods Inventory) 6 Cost of Goods Sold                                      Dr.        31,000    To Finished Goods Inventory                                 31,000 (Cost o finished goods sold to Customers) Answer. 2 The primary difference between the two costing methods is that a process costing system assigns product costs—direct materials, direct labor, and manufacturing overhead—to each production department (or process) rather than to each job. Each production department has its own work-in-process inventory account when using process costing.

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