Question

Baab Corporation is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year:

	Beginning Balance		Ending Balance
Raw materials	$	14,250	$	22,250
Work in process	$	27,250	$	9,250
Finished Goods	$	62,250	$	77,250

The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 33,250 machine-hours and incur $249,375 in manufacturing overhead cost. The following transactions were recorded for the year:

• Raw materials were purchased, $315,250.
• Raw materials were requisitioned for use in production, $307,250 ($280,750 direct and $26,500 indirect).
• The following employee costs were incurred: direct labor, $377,250; indirect labor, $96,250; and administrative salaries, $172,250.
• Selling costs, $147,250.
• Factory utility costs, $10,250.
• Depreciation for the year was $142,000 of which $125,000 is related to factory operations and $17,000 is related to selling, general, and administrative activities.
• Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,050 machine-hours.
• Sales for the year totaled $1,263,000.

Required:

a. Prepare a schedule of cost of goods manufactured. (Round your intermediate calculations to 2 decimal places.)

	Baab Corporation Schedule of Cost of Goods Manufactured Direct materials: Total raw materials available Raw materials used in production Total manufacturing costs Cost of goods manufactured

b. Was the overhead underapplied or overapplied? By how much?

c. Prepare an income statement for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

	Baab Corporation Income Statement Selling and administrative expenses:

Answer 1

a. Prepare a schedule of cost of goods manufactured. (Round your intermediate calculations to 2 decimal places.)

Baab Corporation Schedule of Cost of Goods Manufactured Direct materials: Beginning raw material 14250 Raw material purchase 315250 Total raw materials available 329500 Less: Ending Raw material -22250 Raw materials used in production 307250 Less: Indirect material -26500 280750 Direct labor 377250 Manufacturing overhead (34050*7.5) 255375 Total manufacturing costs 913375 Beginning work in process 27250 Total cost of work in process 940625 Less: Ending work in process -9250 Cost of goods manufactured 931375

b. Was the overhead underapplied or overapplied? By how much?

Applied overhead = 255375

Actual overhead = 26500+96250+10250+125000 = 258000

Under applied overhead = 258000-255375 = 2625

c. Prepare an income statement for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

	Baab Corporation Income Statement Sales revenue 1263000 Cost of goods sold (916375+2625) 919000 Gross profit 344000 Selling and administrative expenses: administrative salaries 172250 Depreciation 17000 Total Selling and administrative expense 189250 Net income 154750