Question

Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials):

Selling expenses	$	215,000
Purchases of raw materials	$	268,000
Direct labor		?
Administrative expenses	$	153,000
Manufacturing overhead applied to work in process	$	366,000
Actual manufacturing overhead cost	$	355,000

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

	Beginning of Year			End of Year
Raw materials	$	50,000		$	32,000
Work in process		?		$	30,000
Finished goods	$	37,000			?

The total manufacturing costs for the year were $680,000; the cost of goods available for sale totaled $740,000; the unadjusted cost of goods sold totaled $668,000; and the net operating income was $39,000. The company’s underapplied or overapplied overhead is closed to Cost of Goods Sold.

Required:

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

Answer 1

Superior Company Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, Beginning	$ 50,000
Add: Purchases of raw materials	$ 268,000
Total raw materials available	$ 318,000
Less : Raw materials inventory, ending	($ 32,000)
Raw materials used in production		$ 286,000
Direct labor - Balacing Fig.		$ 28,000 ( $ 680,000 (-) $ 286,000 (-) $ 366,000)
Manufacturing overhead applied to work in process inventory		$ 366,000
Total Manufacturing costs		$ 680,000
Add: Beginning work in process inventory - Balacing Fig.		$ 53,000 ( $ 733,000 (-) $ 680,000)
		$ 733,000 ( $ 703,000 + $ 30,000)
Less : Ending work in process inventory		($ 30,000)
Cost of goods manufactured (WN 1)		$ 703,000
Superior Company Schedule of Cost of Goods Sold
Finished goods inventory, Beginning	$ 37,000
Add: Cost of goods manufactured (WN 1)                 ( $ 740,000 (-) $ 37,000)	$ 703,000
Cost of goods available for sale	$ 740,000
Less : Finished goods inventory, ending               ( $ 740,000 (-) $ 668,000)	($ 72,000)
Unadjusted cost of goods sold	$ 668,000
Less: Overapplied overhead                ( $ 366,000 (-) $ 355,000)	($ 11,000)
Adjusted cost of goods sold	$ 657,000
Superior Company Income Statement
Sales		$ 1,064,000 ( $ 657,000 + $ 407,000)
Less: Cost of goods sold		$ 657,000
Gross margin . - Bal. Fig.		$ 407,000 ( $ 368,000 + $ 39,000)
Selling and administrative expenses:
- Selling expenses	$ 215,000
- Administrative expense	$ 153,000	($ 368,000)
Net operating income		$ 39,000