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 material used	\(522,000
Direct labor used	\)130,000
Pre-determined 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

(1) direct materials usage,

(2) direct labor incurred

(3) overhead allocation,

(4) goods transfer from production to finished goods, and

(5) credit sales.

Short answer

Both sides of the journal totals $2,964,500.

Step-by-step solution

Definition of Overhead Rate

The rate at which the indirect cost incurred by the business entity will be charged to each production unit is known as the overhead rate. This rate is calculated based on the specific period.

Summary Journal Entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
1	Work-in-process inventory	522,000
	Raw material inventory		522,000
2	Work-in-process inventory	130,000
	Factory wages payable		130,000
3	Work-in-process inventory$\mathbf{(}\mathbf{\$}\mathbf{130}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{175}\mathbf{\%}\mathbf{)}$	227,500
	Factory overhead		227,500
4	Finished goods inventory	595,000
	Work-in-process inventory – Bagging department		595,000
5	Accounts receivables	950,000
	Sales		950,000
	Cost of goods sold	540,000
	Finished goods inventory		540,000
		$2,964,500	$2,964,500