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	$	140,000
Purchases of raw materials	$	290,000
Direct labor		?
Administrative expenses	$	100,000
Manufacturing overhead applied to work in process	$	285,000
Actual manufacturing overhead cost	$	270,000

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

	Beginning of Year			End of Year
Raw materials	$	40,000		$	10,000
Work in process		?		$	35,000
Finished goods	$	50,000			?

The total manufacturing costs for the year were $683,000; the cost of goods available for sale totaled $740,000; the unadjusted cost of goods sold totaled $660,000; and the net operating income was $30,000. 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:

Manufacturing overhead applied to work in process = $285,000

Actual manufacturing overhead cost = $270,000

Hence, over-applied overhead = $285,000 - $270,000 = $15,000

Unadjusted cost of goods sold = $660,000

Less, Overhead over-applied = $15,000

Adjusted cost of goods sold = $660,000 - $15,000 = $645,000

Net Operating Profit = $30,000

Selling expenses = $140,000

Administrative expenses = $100,000

Hence Gross Profit = Net Operating Profit + Selling expenses + Administrative expenses = $30,000 + $140,000 + $100,000 = $270,000

Sales = Gross Profit + Adjusted cost of goods sold = $270,000 + $645,000 = $915,000

Income Statement is given below:

Unadjusted cost of goods sold = $660,000

Cost of goods available for sale = $740,000

Hence Finished Goods - ending inventory = Cost of goods available for sale - Unadjusted cost of goods sold = $740,000 -$660,000 = $80,000

Given, Finished Goods - Beginning inventory = $50,000

Hence, Cost of Goods Manufactured = Cost of goods available for sale - Finished Goods - Beginning inventory = $740,000 - $50,000 = $690,000

Schedule of cost of goods sold is as follows:

Work in process- Ending balance = $35,000

Total manufacturing costs for the year = $683,000

Work in process- Beginning balance = Work in process- Ending balance +Cost of Goods Manufactured - Total manufacturing costs = $35,000 + $690,000 - $683,000 = $42,000

Direct material used = Raw materials- Beginning balance + Purchases of raw materials - Raw materials- Ending balance = $40,000 + $290,000 - $10,000 = $320,000

Given, Manufacturing overhead applied = $285,000

Direct labor = Total manufacturing costs - Direct material used - Manufacturing overhead applied

= $683,000 - $320,000 - $285,000 = $78,000

Schedule of cost of goods manufactured is as below: