Question

Engstrom Manufacturing (which applied overhead to product using a predetermined overhead rate and writes any over or underapplied overhead off to cost of goods sold) reports the following for the year ended 12-31-2016.

	Inventories:
	Beg. Raw Material	$         12,000
	End Raw Material	$         18,000
	Beg. WIP	$         42,000
	End WIP	$         35,000
	Beg. Finished Goods	$         66,000
	End Finished Goods	$         77,500
	Other:
	Direct Labor - cost	$         67,200
	Direct Labor - hours	5,600
	Manufacturing Overhead (actual)	$         43,650
	Raw material purchases	$       112,000
	Sales	$       457,000
	Selling & Admin Expense	$         65,000
	Income Tax Expense	$         46,300
	Predetermine MOH rate	$ 7.50              per DL hour

                        Compute the following:

1. Direct Material (used)
2. Cost of Goods Manufactured
3. Over or (Under) applied overhead
4. Cost of Goods Sold
5. Gross Margin
6. Net Income

Answer 1

Ans. A	Particulars	Amount
	Raw materials inventory, beginning	$12,000
	Add: Purchase of raw materials	$112,000
	Total raw materials available	$124,000
	Deduct : Raw materials inventory, ending	-$18,000
	Direct materials used	$106,000
Ans. B	ENGSTROM MANUFACTURING
	Schedule of Cost of Goods Manufactured
	Particulars	Amount
	Direct materials used	$106,000
	Direct labor	$67,200
	Manufacturing overhead applied	$42,000
	Total manufacturing costs	$215,200
	Add: Beginning work in process inventory	$42,000
	Deduct : Ending Work in process inventory	-$35,000
	Cost of goods manufactured	$222,200
	*Manufactured overhead applied = Predetermined MOH rate * Direct labor hours
	$7.50 * 5,600
	$42,000
Ans. C	If the applied overhead is less than the Actual overhead
	it means that the overhead is under applied.
	*Underapplied overhead = Actual overhead - Applied overhead
	$43,650 - $42,000
	$1,650
Ans. D	ENGSTROM MANUFACTURING
	Schedule of Cost of Goods Sold
	Particulars	Amount
	Finished goods inventory, beginning	$66,000
	Add: Cost of goods manufactured	$222,200
	Cost of goods available for sale	$288,200
	Deduct : Finished goods inventory, ending	-$77,500
	Unadjusted Cost of goods sold	$210,700
	Add: Under applied overhead	$1,650
	Cost of goods sold	$212,350
Ans. E	Particulars	Amount
	Sales	$457,000
	Less: Cost of goods sold	-$212,350
	Gross margin	$244,650
Ans. F	ENGSTROM MANUFACTURING
	Income Statement
	For the Month Ended December 2016
	Particulars	Amount
	Sales	$457,000
	Less: Cost of goods sold	-$212,350
	Gross margin	$244,650
	Less: Selling and administrative expenses	-$65,000
	Operating Income	$179,650
	Less: Income tax expense	-$46,300
	Net income	$133,350