Question

TB Problem Qu. 3-252 Baab Corporation is a ... 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 $ 14,950 $ 22,950 Work in process $ 27,950 $ 9,950 Finished Goods $ 62,950 $ 77,950 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 33,950 machine-hours and incur $302,155 in manufacturing overhead cost. The following transactions were recorded for the year: Raw materials were purchased, $315,950. Raw materials were requisitioned for use in production, $307,950 ($280,050 direct and $27,900 indirect). The following employee costs were incurred: direct labor, $377,950; indirect labor, $96,950; and administrative salaries, $172,950. Selling costs, $147,950. Factory utility costs, $10,950. Depreciation for the year was $184,000 of which $173,000 is related to factory operations and $11,000 is related to selling, general, and administrative activities. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,190 machine-hours. Sales for the year totaled $1,325,000. Required: a. Prepare a schedule of cost of goods manufactured. b. Was the overhead underapplied or overapplied? By how much? c. Prepare an income statement for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

Answer 1

a) overhead rate :estimated overhead /estimated MH

= 302155/33950

= $ 8.9 MH

Schedule of cost of goods manufactured
Direct material used	280050
Direct labor	377950
overhead applied [ [8.9*34190]	304291
Total manufacturing cost	962291
beginning WIP	27950
Ending WIP	(9950)
Cost of goods manufactured	980291

b) Actual overhead:27900+96950+10950+173000=308800

Overhead underapplied /(overapplied )=actual -applied

            = 308800-304291

        = 4509 underapplied

c)cost of goods sold =beginning FG+cost of goods manufactured-ending FG

         = 62950+980291-77950

           = 965291

Adjusted cost OF GOODS SOLd :965291+4509 = 969800

Income statement
sales	1325000
less:adjusted cost of goods sold	(969800)
Gross margin	355200
lesS:operating expense
administrative salaries	(172950)
selling cost	(147950)
depreciation [184000-173000]	(11000)
Total operatting expense	(331900)
net operating income	23300