Question

Pro-Weave manufactures stadium blankets by passing the products through a weaving department and a sewing department. The following information is available regarding its June inventories:

	Beginning inventory	Ending inventory
Raw material inventory	\(120,000	\)185,000
Work-in-process inventory – Weaving	300,000	330,000
Work-in-process inventory – sewing	570,000	700,000
Finished goods inventory	1,266,000	1,206,000

The following additional information describes the company’s manufacturing activities for June:

Raw material purchased (on credit)	\(500,000
Factory payroll cost (paid in cash)	3,060,000
Other factory overhead cost (Other accounts credited)	156,000
Material used:
Direct – Weaving	\)240,000
Direct – Sewing	75,000
Indirect	120,000
Labor used
Direct Weaving	\(1,200,000
Direct – Sewing	360,000
Indirect	1,500,000
Overhead rates as percent of direct labor
Weaving	80%
Sewing	150%
Sales (on credit)	\)4,000,000

Required

1. Compute the (a) cost of products transferred from weaving to sewing, (b) cost of products transferred from sewing to finished goods, and (c) cost of goods sold.

2. Prepare journal entries dated June 30 to record (a) goods transferred from weaving to sewing, (b) goods transferred from sewing to finished goods, and (c) sale of finished goods.

Short answer

1. Various costs:

Transferred to sewing	$2,370,000
Transferred to finished goods	$3,215,000
Cost of goods sold	$3,275,000

2. Both sides of the journal totals $12,860,000.

Step-by-step solution

Definition of Cost of Goods Sold

Cost of goods is an expense account reporting the cost incurred to produce the goods sold to the customer. It is reported in the income statement and deducted from sales to determine gross profit.

Calculation of various cost

a. Cost of products transferred from weaving to sewing

Particular	Amount $
Beginning inventory	$300,000
Direct material	$240,000
Direct labor	$1,200,000
Overhead applied (80% of $1,200,000)	$960,000
Total cost of weaving	$2,700,000
Less: Ending inventory	($330,000)
Transferred to sewing	$2,370,000

b. Cost of product transferred from sewing to finished goods

Particular	Amount $
Beginning inventory	$570,000
Direct material	$75,000
Direct labor	$360,000
Overhead applied (150% of $360,000)	$540,000
Transferred from weaving	$2,370,000
Total cost of Sewing	$3,915,000
Less: Ending inventory	(700,000)
Transferred to finished goods	$3,215,000

c. Cost of goods sold:

Particular	Amount $
Beginning inventory	$1,266,000
Transferred from sewing	$3,215,000
Less: Ending inventory	($1,206,000)
Cost of goods sold	$3,275,000

Journal entries on 30 June

Date	Accounts and Explanation	Debit $	Credit $
30 June	Work-in-process - sewing	$2,370,000
	Work-in-process - weaving		$2,370,000
30 June	Finished goods inventory	$3,215,000
	Work-in-process – sewing		$3,215,000
30 June	Accounts receivables	$4,000,000
	Sales		$4,000,000
30 June	Cost of goods sold	$3,275,000
	Finished goods inventory		$3,275,000
		$12,860,000	$12,860,000