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	$	213,000
Purchases of raw materials	$	266,000
Direct labor		?
Administrative expenses	$	158,000
Manufacturing overhead applied to work in process	$	374,000
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	$	54,000		$	37,000
Work in process		?		$	27,000
Finished goods	$	36,000			?

The total manufacturing costs for the year were $675,000; the cost of goods available for sale totaled $740,000; the unadjusted cost of goods sold totaled $668,000; 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

Sales:
Cost of Goods sold (adjusted)				649000
Add: Selling expense				213000
Add: Operating income				30000
Sales				892000
Total Manufacturing cost				675000
Less: Raw material consumed
Beginning inventory			54000
Add: Purchase			266000
Raw material available for use			320000
Less: Ending inventory			37000	283000
Manufacturing OH applied\				374000
Direct labor cost				18000
Cost of goods available for sale				740000
Less: Beginning FG inventory				36000
Cost of goods manufactured				704000
Add: Ending WIP inventory				27000
				731000
Less: Total manufacturing cost				675000
Beginning Inventory of WIP				56000
Cost of goods available for sale				740000
Less: Cost of Goods sold				668000
Ending inventory of Finished Goods				72000
Schedule of Cost of Goods manufactured
Beginning inventory of WIP					56000
Add: Current Manufacturing cost
Material consumed
Beginning inventory of RM			54000
Add: Purchases			266000
Raw material available for use			320000
Less: Ending inventory of RM			37000
Material consumed				283000
Direct labor				18000
Manufacturing Overheads				374000
Total manufacturing cost					675000
Total cost of goods manufacturing					731000
Less: Ending inventory of WIP					27000
Cost of Goods manufactured					704000
Schedule of Cost of Goods sold:
Beginning inventory of FG				36000
Add: Cost of Goods manufactured				704000
Cost of goods available for sale				740000
Less: Ending inventory of FG				72000
Cost of Goods sold (unadjusted)					668000
Less: Overapplied Overheads (374000-355000)					19000
Cost of Goods sold (Adjusted)					649000
Income Statement
Sales				892000
Less: Adjusted cost of goods sold				649000
Gross margin				243000
Less: Selling expense				213000
Operating income				30000