Question

Babb Company 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	$	11,100		$	16,000
Work in process	$	32,300		$	14,700
Finished goods	$	106,000		$	123,000

  

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 17,900 machine-hours and incur $268,500 in manufacturing overhead cost. The following transactions were recorded for the year:

•	Raw materials were purchased, $414,000.
•	Raw materials were requisitioned for use in production, $409,100 ($380,000 direct and $29,100 indirect).
•	The following employee costs were incurred: direct labor, $332,000; indirect labor, $71,000; and administrative salaries, $153,000.
•	Selling costs, $113,000.
•	Factory utility costs, $23,000.
•	Depreciation for the year was $129,000 of which $111,000 is related to factory operations and $18,000 is related to selling, general, and administrative activities.
•	Manufacturing overhead was applied to jobs. The actual level of activity for the year was 14,900 machine-hours.
•	Sales for the year totaled $1,285,000.

  

Required:

a.

Prepare a schedule of cost of goods manufactured in good form. (Do not round predetermined overhead rate. Input all amounts as positive values. Omit the "$" sign in your response.) b. Was the overhead underapplied or overapplied? By how much? (Do not round predetermined overhead rate. Input the amount as a positive value. Omit the "$" sign in your response.) c. Prepare an income statement for the year in good form. Prepare off-line Cost of Goods Sold Statement and close any underapplied or overapplied overhead to Cost of Goods Sold and use the Adjusted Cost of Goods Sold to answer this requirement. (Input all amounts as positive values. Omit the "$" sign in your response.)

Answer 1

Schedule of Cost of Goods Manufactured
Raw materials used in production		$        380,000
Direct labor		$        332,000
Manufacturing overhead applied(14900*15)		$        223,500
Total manufacturing costs		$        935,500
Add: Beginning work in process inventory		$          32,300
Less: Ending work in process inventory		$        (14,700)
Cost of goods manufactured		$        953,100

Income Statement
Sales		$        1,285,000
Cost of goods sold		946,700
Gross margin		338,300
Selling and administrative expenses:
Selling expenses(113000+18000)	$        131,000
Administrative expense	153,000	284,000
Net operating income		54,300

Workings:

Budgeted manufacturing overhead cost	$        268,500
Budgeted Machine Hour	$          17,900
Predetermined overhead rate	$                  15

Indirect Material	29,100
Indirect Labour	71,000
Factory Uitility Cost	23,000
Depreciation on Factory Operations	111,000
Total Manufactring Overhaed	234,100
Manufacturing overhead applied(14900*15)	223,500
Underapplied Overhead	10,600

Schedule of Cost of Goods Sold
Finished goods inventory, beginning	$     106,000
Add: Cost of goods manufactured	953,100
Cost of goods available for sale	1,059,100
Less: Finished goods inventory, ending	123,000
Unadjusted cost of goods sold	936,100
Add: Underapplied overhead*	10,600
Adjusted cost of goods sold	946,700

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