Question

Exercise 3-6 (Static) Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement [LO3-3]

The following data from the just completed year are taken from the accounting records of Mason Company:

Sales	$	524,000
Direct labor cost	$	70,000
Raw material purchases	$	118,000
Selling expenses	$	140,000
Administrative expenses	$	63,000
Manufacturing overhead applied to work in process	$	90,000
Actual manufacturing overhead costs	$	80,000

Inventories	Beginning		Ending
Raw materials	$	7,000	$	15,000
Work in process	$	10,000	$	5,000
Finished goods	$	20,000	$	35,000

Required:

1. Prepare a schedule of cost of goods manufactured. Assume all raw materials used in production were direct materials.

2. Prepare a schedule of cost of goods sold. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold.

3. Prepare an income statement.

Answer 1

1) A schedule of cost of goods manufactured. Assume all raw materials used in production were direct materials is prepared as follows:

	$	$
Direct Materials
Begining Inventory Material	7,000
Raw Material Purchases	118,000
Less: Ending Inventory Material	(15,000)
Direct Materials used in production		110,000
Direct labor cost		70,000
Manufacturing overhead applied to work in process		90,000
Total Manufacturing Cost		270,000
Add: Work in process Beginning		10,000
Less: Work in process Ending		(5,000)
Cost of goods manufactured		$275,000

2) A schedule of cost of goods sold. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold is as follows:

	$
Finished Goods Begining	20,000
Add: Cost of goods manufactured	275,000
Less: Finished Goods Ending	( 35,000 )
Cost of goods sold	260,000
Less:Overapplied Overhead ($90,000 - $80,000)	(10,000)
Actual Cost of goods sold	250,000

3) Income statement is prepared as follows:

	$
Sales	524,000
Less: Actual Cost of goods sold	250,000
Gross Margin	274,000
Less: Operating Expenses
Administrative expenses	63,000
Selling expenses	140,000
Net Income	$71,000