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 $ 140,000 Purchases of raw materials $ 290,000 Direct labor ? Administrative expenses $ 100,000 Manufacturing overhead applied to work in process $ 285,000 Actual manufacturing overhead cost $ 270,000 Inventory balances at the beginning and end of the year were as follows: Beginning of Year End of Year Raw materials $ 40,000 $ 10,000 Work in process ? $ 35,000 Finished goods $ 50,000 ? The total manufacturing costs for the year were $683,000; the cost of goods available for sale totaled $740,000; the unadjusted cost of goods sold totaled $660,000; and the net operating income was $30,000. 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

Solution :

Superior Company
Schedule of cost of goods manufactured
For year ended December 31
Particulars		Amount
Direct materials:
Beginning inventory of raw materials	$40,000.00
Raw material purchases	$290,000.00
Raw materials available for use	$330,000.00
Less: Ending inventory of raw materials	$10,000.00
Direct materials used		$320,000.00
Direct labor		$78,000.00
Manufacturing overhead applied		$285,000.00
Total manufacturing costs		$683,000.00
Add: beginning WIP		$42,000.00
Total cost of work in process		$725,000.00
Less: Ending WIP		$35,000.00
Cost of goods manufactured		$690,000.00

Superior Company
Schedule of cost of goods sold
For year ended December 31
Particulars	Amount
Beginning finished goods inventory	$50,000.00
Add: Cost of goods manufactured	$690,000.00
Cost of goods available for sale	$740,000.00
Less: Ending finished goods inventory	$80,000.00
Unadjusted Cost of goods sold	$660,000.00
Less: Over applied overhead	$15,000.00
Adjusted cost of goods sold	$645,000.00

Superior Company
Income Statement
For year ended December 31
Particulars	Amount
Sales revenue	$915,000.00
Cost of goods sold	$645,000.00
Gross profit	$270,000.00
Selling Expenses	$140,000.00
Administrative Expenses	$100,000.00
Operating Income	$30,000.00