Chapter 3, Problem 14E

1.

(a)

To determine

To compute: Cost of transferred products form weaving to sewing.

Explanation of Solution

Given,
Opening work in process inventory-weaving is $300,000.
Total weaving cost incurred during the month is $2,400,000.
Closing work in process inventory-weaving is $330,000.

Formula for calculation of cost of transferred goods,

$\text{Cost}\text{of}\text{Transferred}\text{Goods}=\left(\begin{array}{l}\text{Opening}\text{Work}\text{in}\text{Process}\text{Inventory-weaving}\\ +\text{Total}\text{Weaving}\text{Cost}\text{Incurred}\text{During}\text{the}\text{Month}\\ -\text{Closing}\text{Work}\text{in}\text{Process}\text{Inventory-weaving}\end{array}\right)$

Substitute $300,000 foropening work in process inventory-weaving, $2,400,000 for total weaving cost incurred during the month and $330,000 forclosing work in process inventory-weaving.

$\begin{array}{c}\text{Cost}\text{of}\text{Transferred}\text{Goods}=\$300,000+\$2,400,000-\$330,000\\ =\$2,370,000\end{array}$

Hence, cost of transferred goods is $2,370,000.

Working note:

Calculation fortotal weaving cost incurred during the month,

$\begin{array}{c}\text{Total weaving cost incurred during the month}=\left(\begin{array}{l}\text{Material}\text{cost}+\text{Labor}\text{cost}\\ +\text{Overhead}\text{cost}\end{array}\right)\\ =\left(\begin{array}{l}\$240,000+\$1,200,000\\ +\$960,000\end{array}\right)\\ =\$2,400,000\end{array}$

(b)

To determine

To compute: Cost of transferred products form sewing to finished products.

Explanation of Solution

Given,
Opening work in process inventory-sewing is $570,000.
Sewing cost incurred during the month is $975,000.
Transferred from weaving is $2,370,000
Closing work in process inventory-sewing is $700,000.

Formula for calculation of cost of completed and transferred goods,

$\left(\begin{array}{l}\text{Cost}\text{of}\text{Completed}\text{and}\\ \text{Transferred}\text{Goods}\end{array}\right)=\left(\begin{array}{l}\text{Opening}\text{Work}\text{in}\text{Process}\text{Inventory-sewing}\\ +\text{Sewing}\text{Cost}\text{Incurred}\text{During}\text{the}\text{Month}\\ +\text{Transferred}\text{from}\text{weaving}\\ -\text{Closing}\text{Work}\text{in}\text{Process}\text{Inventory-sewing}\end{array}\right)$

Substitute $570,000 foropening work in process inventory-sewing, $975,000 for Sewing cost incurred during the month, $2,370,000 for transferred from weaving and $700,000 forclosing work in process inventory-sewing.

$\begin{array}{c}\text{Cost}\text{of}\text{Completed}\text{and}\text{Transferred}\text{Goods}=\left(\begin{array}{l}\$570,000+\$975,000\\ +\$2,370,000-\$700,000\end{array}\right)\\ =\$3,215,000\end{array}$

Hence, cost of completed and transferred goods is $3,215,000.

Working note:

Calculation forsewing cost incurred during the month,

$\begin{array}{c}\text{Sewing cost incurred during the month}=\left(\begin{array}{l}\text{Material}\text{cost}+\text{Labor}\text{cost}\\ +\text{Overhead}\text{cost}\end{array}\right)\\ =\$75,000+\$360,000+\$540,000\\ =\$975,000\end{array}$

(c)

To determine

To compute: Cost of goods sold.

Explanation of Solution

Given,
Opening finished goods inventory is $1,266,000.
Transferred from sewing is $3,215,000
Closing finished goods inventory is $1,206,000.

Formula for calculation of cost of goods sold,

$\text{Cost}\text{of}\text{Goods}\text{Sold}=\left(\begin{array}{l}\text{Opening}\text{Finished}\text{Goods}\text{Inventory}\\ +\text{Transferred}\text{from}\text{sewing}\\ -\text{Closing}\text{Finished}\text{Goods}\text{Inventory}\end{array}\right)$

Substitute $1,266,000 foropening finished goods inventory, $3,215,000 for transferred from sewing and $1,206,000 forclosing finished goods inventory.

$\begin{array}{c}\text{Cost}\text{of}\text{Completed}\text{and}\text{Transferred}\text{Goods}=\left(\begin{array}{l}\$1,266,000+\$3,215,000\\ -\$1,206,000\end{array}\right)\\ =\$3,275,000\end{array}$

Hence, cost of goods sold is $3,275,000.

2.

To determine

To compute: Journal entry.

Explanation of Solution

(a)

Goods transferred from weaving to sewing department.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Work in Process-Sewing		2,370,000
	Work in Process-Weaving			2,370,000
	(Beinggoods transferred from weaving to sewing department )

Table(1)

• Work in process-sewing is an asset. Since, goods is transferred from weaving to sewing department, it increases work in process-sewing account. Hence, debit work in process-sewing account.
• Work in process-weaving is an asset. Since, goods is transferred from weaving to sewing department, it decreases work in process-weaving account. Hence, credit work in process-weaving account.

(b)

Goods transferred from sewing to finished goods department.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Finished Goods Inventory		3,215,000
	Work in Process-Sewing			3,215,000
	(Beinggoods transferred from sewing to finished goodsdepartment )

Table(2)

• Finished goods inventory is an asset. Since, finished goods inventory is increased, it increases asset. Hence, debit finished goods inventory account.
• Work in process-sewing is an asset. Since, goods is transferred from sewing to finished goods department, it decreases work in process-sewing account. Hence, credit work in process-sewing account.

(c)

Sales of finished goods.

Date	Account Title and Explanation	Post ref	Debit ($)	Credit ($)
June 30	Accounts Receivable		3,275,000
	Sales Revenue			3,275,000
	(Beinggoods soldon credit)

Table(3)

• Accounts receivable is an asset. Since, sales have taken place, but money not received yet. Hence, debit account receivables account.
• Sales revenue is revenue for the company. Since, goods is sold, it increases revenue. Hence, credit sales revenue account.