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. Compute the cost of (a) products transferred from production to finished goods, and (b) goods sold. 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 labour costs incurred, (e) indirect labour 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.

Explanation / Answer

Solution:

1) Computation of Cost of products transferred from production to finished goods and Cost of goods sold:

2) Journal entries to record the production activities during May:

Beginning goods in process inventory       435,000 Direct materials used in production       157,500 Direct labor used in production       780,000 Overhead applied (115% of direct labor cost)       897,000 Total production costs    2,269,500 Less ending goods in process inventory     (515,000) Transferred to finished goods inventory    1,754,500

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