Question

Sierra Company manufactures soccer balls in two sequential processes: Cutting and Stitching. All direct materials enter production at the beginning of the Cutting process. The following information is available regarding its May inventories:

	Beginning Inventory			Ending Inventory
Work in process inventory—Cutting		83,500			80,500
Work in process inventory—Stitching		103,300			72,900
Finished goods inventory		28,100			16,250

The following additional information describes the company's production activities for May.

Direct materials
Raw materials purchased on credit	$	45,000
Direct materials used—Cutting		22,750
Direct materials used—Stitching		0

Direct labor
Direct labor—Cutting	$	17,600
Direct labor—Stitching		70,400
Total factory payroll paid (in cash)		143,800

Factory Overhead (Actual costs)
Indirect materials used	$	18,000
Indirect labor used		55,800
Other overhead costs		51,000

Factory Overhead Rates
Cutting	(150% of direct materials used			)
Stitching	(120% of direct labor used			)
Sales	$416,000

rev: 01_28_2020_QC_CS-197408

Required:
1. Compute the amount of (a) production costs transferred from Cutting to Stitching, (b) production costs transferred from Stitching to finished goods, and (c) cost of goods sold.

I need an explanation of how you figure the numbers out please.

Answer 1

1-a)
Beginning work in process inventory - Cutting	$83,500
Add: Direct materials used in cutting	$22,750
Add: Direct labor used in cutting	$17,600
Add: Factory overheads ($22,750*150/100)	$34,125
Less: Ending work in process inventory - Cutting	($80,500)
Production costs transferred from Cutting to Stitching	$77,475
1-b)
Beginning work in process inventory - Stitching	$103,300
Add: Direct materials used in Stitching	$0
Add: Direct labor used in Stitching	$70,400
Add: Factory overheads ($70,400*120/100)	$84,480
Less: Ending work in process inventory - Stitching	($72,900)
Production costs transferred from Stitching to Finished Goods Inventory	$185,280
1-c)
Beginning Finished Goods Inventory	$28,100
Add: Costs transferred from Stitching	$185,280
Less: Ending Finished Goods Inventory	($16,250)
Cost of Goods Sold	$197,130

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