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 $ 214,000 Purchases of raw materials $ 265,000 Direct labor ? Administrative expenses $ 156,000 Manufacturing overhead applied to work in process $ 371,000 Actual manufacturing overhead cost $ 359,000 Inventory balances at the beginning and end of the year were as follows: Beginning of Year End of Year Raw materials $ 60,000 $ 34,000 Work in process ? $ 26,000 Finished goods $ 30,000 ? The total manufacturing costs for the year were $690,000; the cost of goods available for sale totaled $735,000; the unadjusted cost of goods sold totaled $670,000; and the net operating income was $32,000. 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

Schedule of Cost of Goods Manufactured
Direct materials;
Raw materials inventory, beginning	$60000
Add: Purchases of raw materials	$265000
Total raw materials available	$325000
Deduct: Raw materials inventory, ending	($34000)
Raw materials used in production		$291000
Direct labor ($690000 - $371000 - $291000)		$28000
Manufacturing overhead applied to work in process Inventory		$371000
Total manufacturing costs		$690000
Add: Beginning work in process inventory ($705000 + $26000 - $690000)		$41000
Deduct: Ending work in process inventory		($26000)
Cost of goods manufactured		$705000

Schedule of Cost of Goods Sold
Finished goods inventory, beginning	$30000
Add: Cost of goods manufactured ($735000 - $30000)	$705000
Cost of goods available for sale	$735000
Deduct: Finished goods inventory, ending ($735000 – $670000)	($65000)
Unadjusted cost of goods sold	$670000
Less: Overapplied overhead ($371000 – $359000)	($12000)
Adjusted cost of goods sold	$658000

Income Statement
Sales ($402000 + $658000)		$1060000
Less: Cost of goods sold		($658000)
Gross margin ($370000 + $32000)		$402000
Less: Selling & Administrative Expenses;
Selling expenses	$214000
Administrative expenses	$156000	($370000)
Net operating income		$32000