Question

Superior Company provided the following account balances for the year ended December 31 (all raw materials are used in production as direct materials):

Selling Expenses	$214000
Purchases of Raw Materials	262000
Direct Labor	?
Administrative Expenses	159000
Manufacturing Overhead Applied to Work in Process	333000
Total Actual Manufacturing Overhead Costs	353000

Inventory balances at the beginning and end of the year were as follows: Beginning of Year End of Year Raw Materials $51000 37000 Work in Process ? 24000 Finished Goods 33000 ? The total manufacturing costs for the year were $680,000; the cost of goods available for sale totaled $745,000; the unadjusted cost of goods sold totaled $663,000; and the net operating income was $32,000. The company’s overapplied or underapplied overhead is closed entirely to Cost of Goods Sold. (Hint: Prepare the income statement and schedule of cost of goods sold first followed by the schedule of cost of goods manufactured.) Required: a. Prepare a schedule of cost of goods manufactured. b. Prepare a schedule of cost of goods sold. c. Prepare an income statement for the year.

Answer 1

	Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning	51000
Add: Purchases of raw materials	262000
Total raw materials available	313000
Deduct: Raw materials inventory, ending	37000
Raw materials used in production		276000
Direct labor		71000
Manufacturing overhead applied to work in process inventory		333000
Total manufacturing costs		680000
Add: Beginning work in process inventory		56000
		736000
Deduct: Ending work in process inventory		24000
Cost of goods manufactured		712000
	Schedule of Cost of Goods Sold
Finished goods inventory, beginning		33000
Add: Cost of goods manufactured		712000
Cost of goods available for sale		745000
Deduct: Finished goods inventory, ending		82000
Unadjusted cost of goods sold		663000
Add: Underapplied overhead		20000
Adjusted cost of goods sold		683000
	Income Statement
Sales		1088000
Cost of goods sold		683000
Gross margin .		405000
Selling and administrative expenses:
Selling expenses	214000
Administrative expense	159000	373000
Net operating income		32000