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	$	215,000
Purchases of raw materials	$	262,000
Direct labor		?
Administrative expenses	$	157,000
Manufacturing overhead applied to work in process	$	338,000
Total actual manufacturing overhead costs	$	354,000

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

  

	Beginning of Year			End of Year
Raw materials	$	56,000		$	35,000
Work in process		?		$	29,000
Finished goods	$	30,000			?

The total manufacturing costs for the year were $685,000; the cost of goods available for sale totaled $740,000; the unadjusted cost of goods sold totaled $666,000; and the net operating income was $39,000. 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 :

Beginning raw material inventory	56000
Add: Material purchase	262000
Raw material available for use	318000
Less: Ending raw material inventory	(35000)
Raw material used for production	283000
Direct labour	64000
Manufacturing overhead applied	338000
Total manufacturing cost	685000
Beginning work in process	54000
Total cost of work in process	739000
Less; ending work in process	(29000)
Cost of goods manufactured	710000

2 Schedule of cost of goods sold :

Beginning finished goods inventory	30000
Add; Cost of goods manufactured	710000
Cost of goods available for sale	740000
Less: Ending finished goods inventory	(74000)
unadjusted cost of goods sold	666000
Add: Under applied overhead	16000
Adjusted cost of goods sold	682000

2. Prepare income statement :

Sales		1093000
Cost of goods sold		(682000)
Gross profit		411000
Less; Selling Expneses	(215000)
Less: Administrative expenses	(157000)	(372000)
Net income		39000