Question

Custom Designs

Please use the following data to determine the value of cost of goods sold that should be included within Custom Design’s income statement.

Inventories Beginning Ending

Work in Process $120,000 $97,000

Finished Goods $118,000 $140,000

Additional Information

Direct Materials $310,000

Direct Labor $270,000

Labor Hours Worked 6,800 DLH

Estimated Labor Hours Worked 7,000 DLH

Manufacturing Overhead Incurred $254,000

Estimated Manufacturing Overhead $224,000

Answer 1

Ans.	Custom Designs
	Schedule of Cost of Goods Sold
	Particulars	Amount
	Cost of Goods Manufactured	$820,600
	Add: Beginning finished goods inventory	$118,000
	Cost of goods available for sale	$938,600
	Less: Ending finished goods inventory	-$140,000
	Unadjusted Cost of goods sold	$798,600
	Add: underapplied overhead	$36,400
	Cost of goods sold (adjusted)	$835,000
	*Under applied overhead is added to un adjusted cost of goods sold.
	*Over applied overhead is subtracted from un adjusted cost of goods sold.
	*WORKING NOTES :
	*Calculations for predetermined overhead rate :
	Predetermined overhead rate = Estimated manufacturing overhead / Estimated labor hours worked
	$224,000 / 7,000
	$32.00	per direct labor hour
	*Calculations for manufacturing overhead applied :
	Manufacturing overhead applied = Predetermined overhead rate * Labor hours worked
	$32.00 * 6,800
	$217,600
	*Calculations for under applied overhead :
	If the applied overhead is less than the Actual overhead
	it means that the overhead is under applied.
	*Underapplied overhead = Actual overhead - Applied overhead
	$254,000 - $217,600
	$36,400
	*Calculations for Cost of goods manufactured:
	Direct materials used	$310,000
	Direct labor	$270,000
	Manufacturing overhead applied	$217,600
	Total manufacturing costs	$797,600
	Add: Beginning Work in process inventory	$120,000
	Less: Ending Work in process inventory	-$97,000
	Cost of goods manufactured	$820,600