Question

The following data from the just completed year are taken from the accounting records of Mason Company:

Sales	$	653,000
Direct labor cost	$	85,000
Raw material purchases	$	136,000
Selling expenses	$	110,000
Administrative expenses	$	45,000
Manufacturing overhead applied to work in process	$	208,000
Actual manufacturing overhead costs	$	221,000

Inventories	Beginning		Ending
Raw materials	$	8,200	$	10,300
Work in process	$	5,300	$	20,000
Finished goods	$	75,000	$	25,800

Prepare an income statement.

Answer 1

	Mason Company
	Schedule of Cost of goods Manufactured
	Direct Materials
	Raw Material Inventory beginning	$         8,200
Add:	Purchases of raw Material	$   1,36,000
	Total Raw Material available	$   1,44,200
Less:	Raw Material Inventory ending	$       10,300
	Raw Material used in production		$   1,33,900
	Direct Labour		$       85,000
	Manufacturing overhead		$   2,08,000
	Total manufacturing cost		$   4,26,900
Add:	Beginning work in process inventory		$         5,300
			$   4,32,200
Less:	Ending work in process inventory		$       20,000
	Cost of goods manufactured		$   4,12,200
	Mason Company
	Schedule of Cost of Goods Sold
	Finished Goods Inventory Beginning	$       75,000
Add:	Cost of goods manufactured	$   4,12,200
	Cost of goods available for sale	$   4,87,200
Less:	Finished Goods Inventory Ending	$       25,800
	Unadjusted cost of goods sold	$   4,61,400
Add:	Underapplied Overheads	$       13,000
	Adjusted cost of goods sold	$   4,74,400
	Workings:
2	Underapplied Overheads = Actual Manufacturing overheads - Manufacturing overheads applied
	Underapplied Overheads = $221000 - $2,08,000 = $27,000
	Mason Company
	Income Statement
	Sales		$   6,53,000
Less:	Cost of Goods Sold		$   4,74,400
	Gross Margin		$   1,78,600
Less:	Selling and Administrative Expenses:
	Selling Expense	$   1,10,000
	Administrative Expense	$       45,000	$   1,55,000
	Net Operating Income		$       23,600