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	$	218,000
Purchases of raw materials	$	264,000
Direct labor		?
Administrative expenses	$	159,000
Manufacturing overhead applied to work in process	$	334,000
Total actual manufacturing overhead costs	$	355,000

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

  

	Beginning of Year			End of Year
Raw materials	$	55,000		$	32,000
Work in process		?		$	24,000
Finished goods	$	35,000			?

The total manufacturing costs for the year were $690,000; the cost of goods available for sale totaled $730,000; the unadjusted cost of goods sold totaled $661,000; and the net operating income was $33,000. The company’s overapplied or underapplied overhead is closed entirely to Cost of Goods Sold.

(Hint: Prepare the income statement and schedule of cost of goods sold first followed by the schedule of cost of goods manufactured.)

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

Schedule of cost of goods manufactured :

Direct material
Beginning raw material inventory	55000
Add: material purchase	264000
material available for use	319000
Less: Ending raw material inventory	(32000)
Direct material used in production		287000
Direct labour		69000
Applied manufacturing overhead		334000
Total manufacturing cost		690000
Add: Beginning work in process		29000
Total cost of work in process		719000
Less: Ending work in process		(24000)
Cost of goods manufactured		695000

2. Schedule of cost of goods sold :

Beginning finished goods inventory	35000
Add: Cost of goods manufactured	695000
Cost of goods available for sale	730000
Less; Ending finished goods inventory	(69000)
Unadjusted cost of goods sold	661000
Less: Under applied overhead	21000
Adjusted cost of goods sold	682000

c) Prepare an income statement for the year.

Sales	1092000
Less: cost of goods sold	(682000)
Gross profit	410000
Less: Operating expenses
Administrative expenses	(159000)
Selling expenses	(218000)
Net operating income	33000