Question

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

Selling expenses	$	216,000
Purchases of raw materials	$	260,000
Direct labor		?
Administrative expenses	$	150,000
Manufacturing overhead applied to work in process	$	372,000
Total actual manufacturing overhead costs	$	359,000

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

  

	Beginning of Year			End of Year
Raw materials	$	59,000		$	40,000
Work in process		?		$	32,000
Finished goods	$	31,000			?

The total manufacturing costs for the year were $690,000; the cost of goods available for sale totaled $720,000; the unadjusted cost of goods sold totaled $664,000; and the net operating income was $40,000. The company’s overapplied or underapplied overhead is closed entirely to Cost of Goods Sold.

Required:

a.	Prepare a schedule of cost of goods manufactured.

   

         

b.	Prepare a schedule of cost of goods sold.

      

c.	Prepare an income statement for the year.

Answer 1

a)	COST OF GOODS MANUFACTURED
	Direct materials cost:
	Beginning inventory	$         59,000
	Purchases of raw materials	$      2,60,000
	Total materials available	$      3,19,000
	Ending inventory	$         40,000
	Direct materials cost		$      2,79,000
	Direct labor cost [690000-372000-279000]		$          39,000
	Manufacturing overhead applied		$      3,72,000
	Total manufacturing costs for the year		$      6,90,000
	WIP, beginning [721000-690000]		$          31,000
	Total manufacturing costs [689000+32000]		$      7,21,000
	WIP, ending		$          32,000
	Cost of goods manufactured		$      6,89,000
b)	COST OF GOODS SOLD
	Finished goods, beginning		$          31,000
	Cost of goods manufactured [720000-31000]		$      6,89,000
	Cost of goods available for sale		$      7,20,000
	Finished goods, ending [720000-664000]		$          56,000
	Unadjusted cost of goods sold		$      6,64,000
	Less: Overapplied mfg overhead [372000-359000]		$          13,000
	Adjusted cost of goods sold		$      6,51,000
c)	Sales [406000+651000]		$    10,57,000
	Cost of goods sold		$      6,51,000
	Gross profit [366000+40000]		$      4,06,000
	Operating expenses:
	Selling expenses	$      2,16,000
	Administrative expenses	$      1,50,000	$      3,66,000
	Net income		$          40,000