Question

Baab Corporation is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year:

	Beginning Balance		Ending Balance
Raw materials	$	14,200	$	22,200
Work in process	$	27,200	$	9200
Finished Goods	$	62,200	$	77,200

The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 33,200 machine-hours and incur $245,680 in manufacturing overhead cost. The following transactions were recorded for the year:

Raw materials were purchased, $315,200.

Raw materials were requisitioned for use in production, $307,200 ($280,800 direct and $26,400 indirect).

The following employee costs were incurred: direct labor, $377,200; indirect labor, $96,200; and administrative salaries, $172,200.

Selling costs, $147,200.

Factory utility costs, $10,200.

Depreciation for the year was $139,000 of which $120,400 is related to factory operations and $18,600 is related to selling, general, and administrative activities.

Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,040 machine-hours.

Sales for the year totaled $1,261,000.

Required:

do not enter any commas and round to the nearest dollar

Compute Cost of Goods Manufactured	$
Compute Operating Income	$

Answer 1

Solution :

Pre determined overhead rate = Estimated overhead / Estimated machine hours = $245,680 / 33200 = $7.40 per machine hour

Actual overhead incurred = Indirect material + Indirect labor + Factory utility cost + Depreciation related to factory operations

= $26,400 + $96,200 + $10,200 + $120,400 = $253,200

Overhead applied = 34040 * $7.40 = $251,896

Underapplied overhead = $253,200 - $251,896 = $1,304

Baab Corporation
Schedule of cost of goods manufactured
Particulars	Details	Amount
Direct Material:
Beginning material inventory	$14,200.00
Cost of material purchased	$315,200.00
Cost of material available	$329,400.00
Less: Ending material inventory	$22,200.00
Total material used	$307,200.00
Less: Indirect material used	$26,400.00
Direct material used		$280,800.00
Direct labor		$377,200.00
Manufacturing overhead applied (34040 * $7.40)		$251,896.00
Total manufacturing cost for the year		$909,896.00
Add: Beginning WIP		$27,200.00
Total cost of work in process during the year		$937,096.00
Less: Ending WIP		$9,200.00
Cost of goods manufactured		$927,896.00

Computation of Adjusted Cost of goods sold
Particulars	Amount
Cost of goods manufactured	$927,896.00
Add: Beginning finished goos inventory	$62,200.00
Less: Ending finished goods inventory	$77,200.00
Unadjusted cost of goods sold	$912,896.00
Add: Underapplied overhead	$1,304.00
Adjusted cost of goods sold	$914,200.00

Baab Corporation
Income Statement
Particulars	Details	Amount
Sales		$1,261,000.00
Cost of goods sold		$914,200.00
Gross Profit		$346,800.00
Operating Expenses:
Administrative salaries	$172,200.00
Selling Costs	$147,200.00
Depreciation Expense	$18,600.00
Total operating expenses		$338,000.00
Net Income		$8,800.00