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	$	210,000
Purchases of raw materials	$	267,000
Direct labor		?
Administrative expenses	$	160,000
Manufacturing overhead applied to work in process	$	372,000
Actual manufacturing overhead cost	$	356,000

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

	Beginning of Year			End of Year
Raw materials	$	52,000		$	30,000
Work in process		?		$	25,000
Finished goods	$	36,000			?

The total manufacturing costs for the year were $680,000; the cost of goods available for sale totaled $725,000; the unadjusted cost of goods sold totaled $669,000; and the net operating income was $33,000. 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

Answer

Schedule of Goods Manufactured
Direct Material
Opening Raw Material	52,000
Add: Raw material purchased	267,000
Total raw materials available	319,000
Less: Closing Raw Material	(30,000)
Raw Materials used in Production		289,000
Direct Labor		19,000
Manufacturing Overhead applied to Work in process		372,000
Total Manufacturing cost		680,000
Add: Opening WIP		34,000
		714,000
Less: Closing WIP		25,000
Cost of goods manufactured		689,000

Cost of Goods Manufactured = Cost of Goods available for sale – Opening Finished goods

= 689,000 (725,000 – 36,000)

Opening WIP = (Cost of Goods manufactured + Closing WIP) – Total Manufacturing Cost

= 34,000 (689,000 + 25,000) – 680,000

Direct Labor = Total Manufacturing Cost – Manufacturing overhead applied to work in process – Raw Material used in production

= 19,000 (680,000 – 372,000 – 289,000)

Schedule of Cost of Goods Sold
Opening Finished Goods	36,000
Add: Cost of Goods manufactured	689,000
Cost of Goods available for Sale	725,000
Less: Closing Finished Goods	56,000
Unadjusted Cost of Goods Sold	669,000
Less: Ovderapplied Overhead	(16,000)
Adjusted Cost of Goods Sold	653,000

Closing Finished Goods = Cost of Goods available for sale –unadjusted cost of goods sold

= 56,000 (725,000 – 669,000)

Overapplied Overhead = Applied manufacturing overhead – Actual Overhead

= 16,000 (372,000 – 356000)

Income Statement
Sales		1,056,000
Cost of Goods Sold		653,000
Gross Margin		403,000
Selling and Administrative expenses
Selling Expenses	210,000
Administrative Expenses	160,000	370,000
Net Operating Income		33,000

Gross Margin = Net operating income + Selling Expenses + Administrative expenses

= 403,000 (33,000 + 210,000 + 160,000)

Sales = Gross Margin + Cost of Goods Sold

= 1,056,000 (403,000 + 653,000)