Hardy Company manufactures a single product by a continuous process involving two production departments. The records indicate that $140,000 of direct materials were issued to and $200,000 of direct labor was incurred by Department 1 in the manufacture of the product. The factory overhead rate is $25 per machine hour; machine hours were 5,000 in Department 1. Work in process inventory in the department at the beginning of the period totaled $35,000; and work in process inventory at the end of the period was $25,000. The transfer of production costs to Department 2.
Instructions:
Prepare entries to record (a) The flow of costs into Department 1 for (1) direct materials (2) direct labor (3) overhead (b) The transfer of production costs to Department 2.

Hardy Company

Journal Entries:

Department 1:

1. Debit Work in Process $140,000

Raw materials $140,000

To record the issuance of direct materials to Department 1.

2. Debit Work in Process $200,000

Credit Payroll $200,000

To record the direct labor cost incurred by Department 1.

3. Debit Work in Process $125,000

Credit Factory overhead $125,000

To record the overhead applied in Department 1 ($25 * 5,000).

4. Debit Work in Process (Department 2) $475,000

Credit Work in Process (Department 1) $475,000

To record the transfer of production costs to Department 2.

Explanation:

a) Data and Analysis:

1. Work in Process $140,000 Raw materials $140,000

2. Work in Process $200,000 Payroll $200,000

3. Work in Process $125,000 Factory overhead $125,000 ($25 * 5,000)

4. Work in Process (Department 2) $475,000 Work in Process (Department 1) $475,000

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