Question

Problem 3-13 Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement [LO3-3]

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

Selling expenses	$	215,000
Purchases of raw materials	$	264,000
Direct labor		?
Administrative expenses	$	151,000
Manufacturing overhead applied to work in process	$	366,000
Actual manufacturing overhead cost	$	355,000

Inventory balances at the beginning and end of the year were as follows:

	Beginning of Year			End of Year
Raw materials	$	58,000		$	32,000
Work in process		?		$	24,000
Finished goods	$	39,000			?

The total manufacturing costs for the year were $685,000; the cost of goods available for sale totaled $730,000; the unadjusted cost of goods sold totaled $662,000; and the net operating income was $35,000. 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

Superior Company
Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning	$58,000
Add: Purchases of raw materials	264,000
Total raw materials available	322,000
Deduct: Raw materials inventory, ending	32,000
Raw materials used in production		$290,000
Direct labor (685,000 - 290,000 - 366,000)		29,000
Manufacturing overhead applied to work in process inventory		366,000
Total manufacturing costs		685,000
Add: Beginning work in process inventory (715,000 - 685,000)		20,000
		715,000
Deduct: Ending work in process inventory		24,000
Cost of goods manufactured (730,000 - 39,000)		691,000

Schedule of Cost of Goods Sold
Finished goods inventory, beginning	$39,000
Add: Cost of goods manufactured (730,000 - 39,000)	691,000
Cost of goods available for sale	730,000
Deduct: Finished goods inventory, ending (730,000 - 662,000)	68,000
Unadjusted cost of goods sold	662,000
Less: Overapplied overhead (366,000 - 355,000)	11,000
Adjusted cost of goods sold	651,000

Income Statement
Sales (651,000 + 401,000)		$1,052,000
Cost of goods sold		651,000
Gross margin (366,000 + 35,0000)		401,000
Selling and administrative expenses:
Selling expenses	215,000
Administrative expense	151,000	366,000
Net operating income		$35,000