Question

Laffer Lumber produces bagged bark for use in landscaping. Production involves packaging bark chips in plastic bags in a bagging department. The following information describes production operations for October.
Bagging Department
Direct materials used $522,000
Direct labor used $130,000
Predetermined overhead rate (based on direct labor) 175%
Goods transferred from bagging to finished goods $(595,000)

The company's revenue for the month totaled $950,000 from credit sales, and its cost of goods sold for the month is $540,000. Prepare summary journal entries dated October 31 to record its October production activities for:

a. direct material usage
b. direct labor incurred
c. overhead allocation
d. goods transfer from production to finished goods
e. credit sales.

Answer 1

Solution :

a). $\text{Direct material usage }$

Account title                                               Debit($)                       Credit($)

Goods in process inventory                     522,000

Raw material inventory                                                                 522,000

b). $\text{Direct labor incurred}$

Account title                                               Debit($)                       Credit($)

Goods in process inventory                     130,000

Factory payroll                                                                                130,000

c). $\text{Overhead allocation}$

Account title                                               Debit($)                       Credit($)

Goods in process inventory                     227,500

Factory overhead (130,000 x 175%)                                              227,500

d). $\text{Goods transfer from production to finished goods}$.

Account title                                               Debit($)                       Credit($)

Finished good inventory                         595,000

Goods in process inventory                                                         595,000

e). $\text{Credit sales}$

Account title                                               Debit($)                       Credit($)

Account receivable                                  950,000

Sales                                                                                             950,000

Cost of goods sold                                  540,000

Finished goods inventory                                                           540,000