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	$	211,000
Purchases of raw materials	$	267,000
Direct labor		?
Administrative expenses	$	156,000
Manufacturing overhead applied to work in process	$	374,000
Actual manufacturing overhead cost	$	356,000

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

	Beginning of Year			End of Year
Raw materials	$	57,000		$	38,000
Work in process		?		$	23,000
Finished goods	$	33,000			?

The total manufacturing costs for the year were $690,000; the cost of goods available for sale totaled $725,000; the unadjusted cost of goods sold totaled $662,000; and the net operating income was $31,000. 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 Material Inventory beginning	$     57,000
Add:	Purchases of raw Material	$ 2,67,000
	Total Raw Material available	$ 3,24,000
Deduct:	Raw Material Inventory ending	$     38,000
	Raw Material used in production		$   2,86,000
	Direct Labour		$       30,000
	Manufacturing overheads applied to work in process inventory		$   3,74,000
	Total manufacturing cost		$   6,90,000
Add:	Beginning work in process inventory		$       25,000
			$   7,15,000
Deduct:	Ending work in process inventory		$       23,000
	Cost of goods manufactured		$   6,92,000
	Workings:
1	Direct Labour =Total manufacturing cost - Raw Material used in production - Manufacturing overheads applied to work in process inventory
	Direct Labour = $6,90,000-$2,86,000-$3,74,000= $30,000
2	Cost of goods manufactured = Cost of goods available for sale - Beginning finished goods inventory
	Cost of goods manufactured = $7,25,000 - $33,000 = $6,92,000
3	Beginning work in process inventory = Cost of goods manufactured + Ending work in process inventory - Total Manufacturing Cost
	Beginning work in process inventory = $6,92,000 + $23,000 - $6,90,000 = $25,000
	Superior Company
	Schedule of Cost of Goods Sold
	Finished Goods Inventory Beginning	$     33,000
	Cost of goods manufactured	$ 6,92,000
	Cost of goods available for sale	$ 7,25,000
Deduct:	Finished Goods Inventory Ending	$     63,000
	Unadjusted cost of goods sold	$ 6,62,000
Add:	Underapplied Overheads	$     32,000
	Adjusted cost of goods sold	$ 6,94,000
	Workings:
1	Adjusted cost of goods sold = Cost of goods available for sale - Net operating Income
	Adjusted cost of goods sold = $7,25,000 - $31,000 = $6,94,000
2	Underapplied Overheads = Adjusted cost of goods sold - Unadjusted Cost of goods sold
	Underapplied Overheads = $6,94,000 - $6,62,000 = $32,000
	Superior Company
	Income Statement
	Sales		$ 10,92,000
Deduct:	Cost of Goods Sold		$   6,94,000
	Gross Margin		$   3,98,000
Deduct:	Selling and Administrative Expenses:
	Selling Expense	$ 2,11,000
	Administrative Expense	$ 1,56,000	$   3,67,000
	Net Operating Income		$       31,000
	Workings:
1	Gross Margin = Net Operating Income +Selling and Administrative Expenses
	Gross Margin = $31,000 + $3,67,000 = $3,98,000
2	Sales = Cost of Goods Sold + Gross Margin
	Sales = $6,94,000 + $3,98,000 = $10,92,000