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	$	215,000
Purchases of raw materials	$	267,000
Direct labor		?
Administrative expenses	$	150,000
Manufacturing overhead applied to work in process	$	367,000
Actual manufacturing overhead cost	$	351,000

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

	Beginning of Year			End of Year
Raw materials	$	54,000		$	33,000
Work in process		?		$	32,000
Finished goods	$	39,000			?

The total manufacturing costs for the year were $675,000; the cost of goods available for sale totaled $725,000; the unadjusted cost of goods sold totaled $662,000; 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.)

Prepare an income statement for the year.

	Superior Company Income Statement Sales Cost of goods sold Gross margin 0 Selling and administrative expenses: Selling expenses Administrative expenses 0 Net operating income

Prepare a schedule of cost of goods sold.

	Superior Company Schedule of Cost of Goods Sold Adjusted cost of goods sold

Prepare a schedule of cost of goods manufactured.

	Superior Company Schedule of Cost Goods Manufactured Direct materials: Total raw materials available Raw materials used in production Total manufacturing costs 0 Cost of goods manufactured

Answer 1

Manufacturing costs = Raw materials used + Direct labor + Manufacturing overhead applied
$675,000 = $288,000 + Direct labor + $367,000
Direct labor = $20,000

Cost of goods available for sale = Beginning finished goods inventory + Cost of goods manufactured
$725,000 = $39,000 + Cost of goods manufactured
Cost of goods manufactured = $686,000

Cost of goods manufactured = Beginning work in process + Manufacturing costs - Ending work in process
$686,000 = Beginning work in process + $675,000 - $32,000
Beginning work in process = $43,000

Unadjusted cost of goods sold = Cost of goods available for sale - Ending finished goods inventory
$662,000 = $725,000 - Ending finished goods inventory
Ending finished goods inventory = $63,000

Overapplied overhead = Manufacturing overhead applied - Actual manufacturing overhead
Overapplied overhead = $367,000 - $351,000
Overapplied overhead = $16,000

Net operating income = Gross margin - Selling expenses - Administrative expenses
$32,000 = Gross margin - $215,000 - $150,000
Gross margin = $397,000

Gross Margin = Sales - Cost of Goods Sold
$397,000 = Sales - $646,000
Sales = $1,043,000