Question

Dream Toys Company manufactures video game consoles and accounts for product costs using process costing. The company uses a single processing department. The following information is available regarding its June inventories.

	Beginning Inventory	Ending Inventory
Raw materials inventory	\( 72,000	\)110,000
Work in process inventory	156,000	250,000
Finished goods inventory	160,000	198,000

The following additional information describes the company’s production activities for June.

Raw materials purchases (on credit)	\( 200,000
Factory payroll cost (paid in cash	400,000
Other overhead cost (Other Accounts credited)	170,500
Materials used
Direct	\) 120,000
Indirect	42,000
Labor used
Direct	\( 350,000
Indirect	50,000
Overhead rate as a percent of direct labor	75%
Sales (on credit)	\)1,000,000

Required

1. Compute the cost of (a) products transferred from production to finished goods and (b) goods sold.

2. Prepare journal entries dated June 30 to record the following production activities during June: (a) raw materials purchases, (b) direct materials usage, (c) indirect materials usage, (d) direct labor costs, (e) indirect labor costs, (f) payment of factory payroll, (g) other overhead costs, (h) overhead applied, (i) goods transferred from production to finished goods, and (j) sale of finished goods.

Short answer

1. a) Transferred to finished goods inventory is $638,500

b) Cost of goods sold is $600,500

2) Total debit and credit side of the journal is $3,834,000

Step-by-step solution

Meaning of Process Costing

Process costing is utilized when producing large amounts of indistinguishable products, where it is insensible to recognize the costs of distinctive output units. In other words, the cost of each produced good is considered the same as the cost of every other good.

(a) Computing cost of the product transferred and cost of goods sold

Beginning goods in process inventory	$156,000
Direct materials used in production	120,000
Direct labor used in production	350,000
Overhead applied (75% of direct labor cost)	262,500
Total production costs	888,500
Less: Ending goods in process inventory	(250,000)
Transferred to finished goods inventory (a)	$638,500
Beginning finished goods inventory	$160,000
Add: goods transferred from production	638,500
Goods available for sale	798,500
Less: Ending finished goods inventory	(198,000)
Cost of goods sold (b)	$600,500

(b) Preparing journal entries

Date	Particulars	Debit ($)	Credit ($)
a) June 30	Raw material inventory	200,000
	Accounts payable		200,000
b) June, 30	Goods in process inventory	120,000
	Raw material inventory		120,000
c) June, 30	Factory overhead	42,000
	Raw material inventory		42,000
d) June, 30	Factory payroll	400,000
	Cash		400,000
e) June, 30	Goods in process inventory	350,000
	Factory payroll		350,000
f) June, 30	Factory overhead	50,000
	Factory payroll		50,000
g) June, 30	Factory overhead	170,500
	Other accounts		170,500
h) June, 30	Goods in process inventory	262,500
	Factory overhead		262,500
i) June, 30	Finished goods inventory	638,500
	Goods in process inventory		638,500
j) June, 30	Accounts receivable	1,000,000
	Sales		1,000,000
June, 30	Cost of goods sold	600,500
	Finished goods inventory		600,500
		$3,834,000	$3,834,000