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 $ 214,000 Purchases of raw materials $ 261,000 Direct labor ? Administrative expenses $ 155,000 Manufacturing overhead applied to work in process $ 374,000 Actual manufacturing overhead cost $ 358,000 Inventory balances at the beginning and end of the year were as follows: Beginning of Year End of Year Raw materials $ 60,000 $ 31,000 Work in process ? $ 33,000 Finished goods $ 34,000 ? The total manufacturing costs for the year were $685,000; the cost of goods available for sale totaled $730,000; the unadjusted cost of goods sold totaled $670,000; and the net operating income was $32,000. 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

A	B	C	D
	Superior Company
	Income Statement
4	Sales		1055000
5	Cost of goods sold		654000
6	Gross margin		401000
7	Selling and administrative expenses:
8	Selling expenses	214000
9	Administrative expenses	155000
10
11			369000
12	Net operating income		32000
	Superior Company
	Schedule of Cost of Goods Sold
16	Cost of goods manufactured	696000
17	Add: Beginning finished goods inventory	34000
18	Cost of goods available for sale	730000
19	Less: Ending finished goods inventory	60000
20	Unadjusted cost of goods sold	670000
21	Less: Overapplied manufacturing overhead (358000 - 374000)	16000
22	Adjusted cost of goods sold	654000
	Superior Company
	Schedule of Cost of Goods Manufactured
	Direct materials:
27	Beginning raw materials inventory	60000
28	Add: Purchases of raw materials	261000
29	Total raw materials available	321000
30	Less: Ending raw materials inventory	31000
31	Raw materials used in production		290000
32	Direct labor		21000
33	Manufacturing overheads applied to work in process		374000
34	Total manufacturing costs		685000
35	Add: Beginning work in process inventory		44000
36			729000
37	Less: Ending work in process inventory		33000
38	Cost of goods manufactured		696000

Working:

A	B	C	D
	Superior Company
	Income Statement
4	Sales		=D5+D6
5	Cost of goods sold		=C22
6	Gross margin		=D11+D12
7	Selling and administrative expenses:
8	Selling expenses	214000
9	Administrative expenses	155000
10
11			=C8+C9
12	Net operating income		32000
	Superior Company
	Schedule of Cost of Goods Sold
16	Cost of goods manufactured	=C18-C17
17	Add: Beginning finished goods inventory	34000
18	Cost of goods available for sale	730000
19	Less: Ending finished goods inventory	=C18-C20
20	Unadjusted cost of goods sold	670000
21	Less: Overapplied manufacturing overhead (358000 - 374000)	=374000-358000
22	Adjusted cost of goods sold	=C20-C21
	Superior Company
	Schedule of Cost of Goods Manufactured
	Direct materials:
27	Beginning raw materials inventory	60000
28	Add: Purchases of raw materials	261000
29	Total raw materials available	=C27+C28
30	Less: Ending raw materials inventory	31000
31	Raw materials used in production		=C29-C30
32	Direct labor		=D34-D31-D33
33	Manufacturing overheads applied to work in process		374000
34	Total manufacturing costs		685000
35	Add: Beginning work in process inventory		=D36-D34
36			=D37+D38
37	Less: Ending work in process inventory		33000
38	Cost of goods manufactured		=C16