Question

Section B –Answer ALL Questions: 50 Marks

Question 1: 20 Marks

Superior Manufacturing Company has the following cost and expense data for the year ending December 31, 2016:

Raw materials, January 1 $30,000 Insurance—factory $ 14,000

Raw materials, December 31 20,000 Property taxes—factory building 6,000

Raw materials purchased 205,000 Sales (net) 1,500,000

Indirect materials 15,000 Delivery expenses 100,000

Work in process, January 1 80,000 Sales commissions 150,000

Work in process, December 31 50,000 Indirect labour 90,000

Finished goods, January 1 110,000 Factory machinery rent 40,000

Finished goods, December 31 120,000 Factory utilities 65,000

Direct labour 350,000 Depreciation—factory building 24,000

Factory manager's salary 35,000 Administrative expenses 300,000

Instructions

(a) Prepare a cost of goods manufactured schedule for Superior Manufacturing Company for 2016 –

(b) Prepare an income statement for Superior Manufacturing Company for 2016 –

Answer 1

a) Cost of Goods Manufactured
Raw materials, January 1	$30,000
Add: Raw materials purchases	$205,000
Less: Raw materials, December 31	($20,000)
Raw materials used in the production		$215,000
Add: Direct labour		$350,000
Add: Factory overheads:
Insurance - Factory	$14,000
Property taxes - factory building	$6,000
Indirect materials	$15,000
Indirect labour	$90,000
Factory machinery rent	$40,000
Factory utilities	$65,000
Depreciation - Factory building	$24,000
Factory manager's salary	$35,000
Total Factory Overheads		$289,000
Total Manufacturing Cost		$854,000
Add: Work in process, January 1		$80,000
Less: Work in process, December 31		($50,000)
Cost of Goods Manufactured		$884,000
b) Income Statement
Sales Revenue (net)	$1,500,000
Less: Cost of Goods Sold (see note)	($874,000)
Gross Margin	$626,000
Less: Selling and Administrative expenses:
Delivery Expenses	($100,000)
Sales commissions	($150,000)
Administrative expenses	($300,000)
Net Operating Income	$76,000
Working notes:
Cost of Goods sold:
Cost of Goods Manufactured	$884,000
Add: Finished goods, January 1	$110,000
Less: Finished goods, December 31	($120,000)
Cost of Goods sold	$874,000