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	$	212,000
Purchases of raw materials	$	262,000
Direct labor		?
Administrative expenses	$	155,000
Manufacturing overhead applied to work in process	$	377,000
Actual manufacturing overhead cost	$	357,000

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

	Beginning of Year			End of Year
Raw materials	$	58,000		$	40,000
Work in process		?		$	29,000
Finished goods	$	32,000			?

The total manufacturing costs for the year were $675,000; the cost of goods available for sale totaled $735,000; the unadjusted cost of goods sold totaled $666,000; and the net operating income was $36,000. 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

Income statement
Sales (bal fig)		$1,150,000.00
Cost of goods sold		$640,000.00
Gross Margin		$510,000.00
Selling and Admin Expense
Selling Expense	$212,000.00
Administrative expense	$262,000.00
		$474,000.00
Net Operating Income		$36,000.00

Superior Company Schedule of Cost of Goods Manufactured For the Year Ended December 31
Direct materials:
Raw materials inventory, beginning (given)	$58,000.00
Add: Purchases of raw materials (given)	$262,000.00
Raw materials available for use	$320,000.00
Deduct: Raw materials inventory, ending (given)	$40,000.00
Raw materials used in production		$280,000.00
Direct labor		$18,000.00
Manufacturing overhead (given)		$377,000.00
Total manufacturing costs (given)		$675,000.00
Add: Work in process inventory, beginning		$60,000.00
		$735,000.00
Deduct: Work in process inventory, ending (given)		$29,000.00
Cost of goods manufactured		$706,000.00

Cost of goods sold Schedule
Finished goods inventory, beginning (given)		$32,000.00
Add: Cost of goods manufactured		$706,000.00
Goods available for sale (given)		$735,000.00
Deduct: Finished goods inventory, ending		$75,000.00
Cost of goods sold (given)		$660,000.00
Less Overhead over applied		$20,000.00
Adjusted cost of goods sold		$640,000.00