Prepare summary journal entries to record the following transactions for a company in its first month of operations.

1. Raw materials purchased on account, $86,000.

2. Direct materials used in production, $38,500. Indirect materials used in production, $23,000.

3. Paid cash for factory payroll, $50,000. Of this total, $38,000 is for direct labor and $12,000 is for indirect labor.

4. Paid cash for other actual overhead costs, $7,375.

5. Applied overhead at the rate of 125% of direct labor cost.

6. Transferred cost of jobs completed to finished goods, $62,600.

7. Sold jobs on account for $90,000 g (2). The jobs had a cost of $62,600 g (1).

1.

Raw Materials $86,000 (debit)

Accounts Payable $86,000 (credit)

2.

Work In Process : Direct Materials $38,500 (debit)

Work In Process : Indirect Materials $23,000 (debit)

Raw Materials $61,500 (credit)

3.

Work In Process : Direct Labor $38,000 (debit)

Work In Process : Indirect Labor $12,000 (debit)

Cash $50,000 (credit)

4.

Overheads $7,375 (debit)

Cash $7,375 (credit)

5.

Work In Process $47,500 (debit)

Overheads $47,500 (credit)

6.

Finished Goods $62,600 (debit)

Work In Process $62,600 (credit)

7.

Accounts Receivable $90,000 (debit)

Cost of Sales $62,600 (debit)

Sales Revenue $90,000 (credit)

Finished Goods $62,600 (credit)

Explanation:

The costs of manufacture are accumulated in the Work In Process Account as was shown above.

Note that only Applied Overheads not Overheads incurred are included in Work In Process Account.

The Costs of Goods Transferred is Eliminated from The Work In Process Account and Included in the Finished Goods Account.

Journal 7 Records Both the Revenue and Cost of Goods Sold on Account.