Question

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

Sales	$	653,000
Direct labor cost	$	87,000
Raw material purchases	$	132,000
Selling expenses	$	105,000
Administrative expenses	$	42,000
Manufacturing overhead applied to work in process	$	208,000
Actual manufacturing overhead costs	$	229,000

Inventories	Beginning		Ending
Raw materials	$	9,000	$	11,000
Work in process	$	5,100	$	20,700
Finished goods	$	77,000	$	25,400

Required:

1. Prepare a schedule of cost of goods manufactured. Assume all raw materials used in production were direct materials.

2. Prepare a schedule of cost of goods sold. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold.

3. Prepare an income statement.

Answer 1

Ans. 1	MASON COMPANY
	Schedule of Cost of Goods Manufactured
	Particulars	Amount	Amount
	Direct materials:
	Beginning raw materials inventory	$9,000
	Add: Purchase of raw materials	$132,000
	Total Raw materials available	$141,000
	Less: Ending raw materials inventory	($11,000)
	Raw materials used in production		$130,000
	Direct labor		$87,000
	Manufacturing overhead applied		$208,000
	Total manufacturing costs		$425,000
	Add: Beginning Work in process inventory		$5,100
	Total cost of work in process		$430,100
	Less: Ending Work in process inventory		($20,700)
	Cost of goods manufactured		$409,400
Ans. 2	MASON COMPANY
	Schedule of Cost of Goods Sold
	Particulars	Amount
	Beginning finished goods inventory	$77,000
	Add: Cost of Goods Manufactured	$409,400
	Cost of goods available for sale	$486,400
	Less: Ending finished goods inventory	($25,400)
	Unadjusted Cost of goods sold	$461,000
	Add: Under applied overhead	$21,000
	Adjusted cost of goods sold	$482,000
	If the applied overhead is greater than the Actual overhead
	it means that the overhead is over applied.
	*Under applied overhead = Actual overhead - Applied overhead
	$229,000 - $208,000
	$21,000
Ans. 3	MASON COMPANY
	Income Statement
	Particulars	Amount	Amount
	Sales		$653,000
	Less: Cost of goods sold		$482,000
	Gross margin		$171,000
	Less: Operating expenses:
	Selling expenses	$105,000
	Administrative expenses	$42,000
	Total operating expenses		$147,000
	Net Income		$24,000