Question

Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials):

Selling expenses	$	211,000
Purchases of raw materials	$	265,000
Direct labor		?
Administrative expenses	$	152,000
Manufacturing overhead applied to work in process	$	365,000
Actual manufacturing overhead cost	$	354,000

Inventory balances at the beginning and end of the year were as follows:

	Beginning of Year			End of Year
Raw materials	$	52,000		$	39,000
Work in process		?		$	31,000
Finished goods	$	33,000			?

The total manufacturing costs for the year were $685,000; the cost of goods available for sale totaled $725,000; the unadjusted cost of goods sold totaled $660,000; and the net operating income was $34,000. The company’s underapplied or overapplied overhead is closed to Cost of Goods Sold.

Required:

Prepare schedules of cost of goods manufactured and cost of goods sold and an income statement. (Hint: Prepare the income statement and schedule of cost of goods sold first followed by the schedule of cost of goods manufactured.)

Answer 1

Manufacturing costs = Raw materials used + Direct labor + Manufacturing overhead applied
$685,000 = $278,000 + Direct labor + $365,000
Direct labor = $42,000

Cost of goods available for sale = Beginning finished goods inventory + Cost of goods manufactured
$725,000 = $33,000 + Cost of goods manufactured
Cost of goods manufactured = $692,000

Cost of goods manufactured = Beginning work in process + Manufacturing costs - Ending work in process
$692,000 = Beginning work in process + $685,000 - $31,000
Beginning work in process = $38,000

Unadjusted cost of goods sold = Cost of goods available for sale - Ending finished goods inventory
$660,000 = $725,000 - Ending finished goods inventory
Ending finished goods inventory = $65,000

Overapplied overhead = Manufacturing overhead applied - Actual manufacturing overhead
Overapplied overhead = $365,000 - $354,000
Overapplied overhead = $11,000

Net operating income = Gross margin - Selling expenses - Administrative expenses
$34,000 = Gross margin - $211,000 - $152,000
Gross margin = $397,000

Gross Margin = Sales - Cost of Goods Sold
$397,000 = Sales - $649,000
Sales = $1,046,000