Question

A firm produces its products by a continuous process involving three production departments, 1 through 3. Present entries to record the following selected transactions related to production during August:

(a) Materials purchased on account, $120,000.
(b) Material requisitioned for Use in Department 1, $125, 700, of which $124, 200 entered directly into the product
(c) Labor cost incurred in Department 1, $195, 400, of which $174,000 was used directly in the manufacture of the product
(d) Factory overhead costs for Department 1 incurred on account, $54, 700
(e) Depreciation on machinery in Department 1, $29, 200
(f) Expiration of prepaid insurance chargeable to Department 1, $7,000
(g) Factory overhead applied to production in Department 1, $106, 300
(h) Output of Department 1 transferred to Department 2, $362, 700

Answer 1

a.

Raw Materials $120,000 (debit)

Accounts Payable $120,000 (credit)

b.

Work In Process : Direct Materials $124,200 (debit)

Work In Process : Indirect Materials $1,500 (debit)

Raw Materials $125,700 (credit)

c.

Work In Process : Direct Labor $174,000 (debit)

Work In Process : Indirect Labor $21,400 (debit)

Salaries and Wages Payable $195,400 (credit)

d.

Factory Overheads $54,700 (debit)

Accounts Payable $54,700 (credit)

e.

Work In Process : Depreciation $29,200 (debit)

Accumulated Depreciation $29,200 (credit)

f.

Work In Process : Insurance Expense $7,000 (debit)

Prepaid Insurance $7,000 (credit)

g

Work In Process : Factory Overheads $106, 300 (debit)

Factory Overheads $106, 300 (credit)

h.

Work In Process : Department 1 $362,700 (debit)

Work In Process : Department 1 $362,700 (credit)

Step-by-step explanation:

Costs accumulate in the Work In Process Account during Manufacturing Process.

Only Factory Overheads Applied are transferred to Work In Process Account during Manufacture.

During transfer from Department 1 to Department 2, De-recognize Manufacturing Cost from Department 1 Work In Process Account into Department 2 Work In Process Account