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

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