Question

Exercise 3-6 Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement [LO3-3]

The following data from the just completed year are taken from the accounting records of Mason Company:

Sales	$	655,000
Direct labor cost	$	82,000
Raw material purchases	$	139,000
Selling expenses	$	101,000
Administrative expenses	$	48,000
Manufacturing overhead applied to work in process	$	204,000
Actual manufacturing overhead costs	$	228,000

Inventories	Beginning		Ending
Raw materials	$	8,000	$	10,800
Work in process	$	5,000	$	20,900
Finished goods	$	77,000	$	25,300

Required:

1. Prepare a schedule of cost of goods manufactured. Assume all raw materials used in production were direct materials.

2. Prepare a schedule of cost of goods sold. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold.

3. Prepare an income statement

Answer 1

	Mason Company
	Schedule of Cost of goods Manufactured
	Direct Materials
	Raw Material Inventory beginning	$         8,000
Add:	Purchases of raw Material	$   1,39,000
	Total Raw Material available	$   1,47,000
Less:	Raw Material Inventory ending	$       10,800
	Raw Material used in production		$   1,36,200
	Direct Labor		$       82,000
	Manufacturing overhead		$   2,04,000
	Total manufacturing cost		$   4,22,200
Add:	Beginning work in process inventory		$         5,000
			$   4,27,200
Less:	Ending work in process inventory		$       20,900
	Cost of goods manufactured		$   4,06,300
	Mason Company
	Schedule of Cost of Goods Sold
	Finished Goods Inventory Beginning	$       77,000
Add:	Cost of goods manufactured	$   4,06,300
	Cost of goods available for sale	$   4,83,300
Less:	Finished Goods Inventory Ending	$       25,300
	Unadjusted cost of goods sold	$   4,58,000
Add:	Underapplied Overheads	$       24,000
	Adjusted cost of goods sold	$   4,82,000
	Workings:
2	Underapplied Overheads = Actual Manufacturing overheads - Manufacturing overheads applied
	Underapplied Overheads = $228000 - $2,04,000 = $24,000
	Mason Company
	Income Statement
	Sales		$   6,55,000
Less:	Cost of Goods Sold		$   4,82,000
	Gross Margin		$   1,73,000
Less:	Selling and Administrative Expenses:
	Selling Expense	$   1,01,000
	Administrative Expense	$       48,000	$   1,49,000
	Net Operating Income		$       24,000

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