Question

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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	$55,500
Work in process inventory	441,000	593,000
Finished goods inventory	620,000	574,000

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

Raw materials purchases (on credit)	$300,000
Factory wages cost (paid in cash)	1,531,000
Other overhead cost (Other Accounts credited)	66,000
Materials used
Direct	$215,500
Indirect	80,000
Labor used
Direct	$780,000
Indirect	751,000
Overhead rate as a percent of direct labor	115%
Sales (on credit)	$5,500,000

The predetermined overhead rate was computed at the beginning of the year as 115% of direct labor cost.

rev: 09_05_2017_QC_CS-97362

Required:
1. Compute the cost of products transferred from production to finished goods and cost of goods sold.

Answer 1

Raw materials (RM)					Work in process (WIP)
					Beg bal	441,000	Trsfd	1,740,500
Beg bal	51,000	Direct M	215,500		DM used	215,500
purchases	300,000	indirect mat	80,000		DL used	780,000
					OH applied	897000
ending bal	55,500
					end bal	593,000
Factory wages payable					finished goods (FG)
cash	1,531,000	dL used	780,000		beg bal	620,000	COGS	1,786,500
		indirect la	751,000		Tsfd	1,740,500
end bal	0				end bal	574,000
Factory overhead					income statement (partial)
other	66,000	oh applied	897,000		Sales			5,500,000
indirct mat	80,000				cost of goods sold			1,786,500
indirect la	751,000				Gross margin			3,713,500
end bal	0	0
					Cost of goods transferred			1,740,500
					Cost of goods sold			1,786,500