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	$	650,000
Direct labor cost	$	87,000
Raw material purchases	$	136,000
Selling expenses	$	104,000
Administrative expenses	$	46,000
Manufacturing overhead applied to work in process	$	200,000
Actual manufacturing overhead costs	$	226,000

Inventories	Beginning		Ending
Raw materials	$	8,800	$	11,000
Work in process	$	6,000	$	20,800
Finished goods	$	78,000	$	25,900

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

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

Answer -

Schedule of Cost of Goods Manufactured

	Explanation	Amount ($)
Direct materials:	-	-
Beginning raw materials inventory	Given in question	8800
Add: Purchases of raw materials	Given in question	136000
Raw materials available for use	$8800 + $136000	144800
Less: Ending raw materials inventory	Given in question	11000
Raw materials used in production	$144800 - $11000	133800
Direct labor	Given in question	87000
Manufacturing overhead cost applied to work in process	Given in question	200000
Total manufacturing costs	$133800 + $87000 + $200000	420800
Add: Beginning work in process inventory	Given in question	6000
Less: Ending work in process inventory	Given in question	20800
Cost of goods manufactured	$420800 + $6000 - $20800	406000

.

(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.

Answer -

Schedule of Cost of Goods Sold

	Explanation	Amount ($)
Beginning finished goods inventory	Given in question	78000
Add: Cost of goods manufactured	Calculated in Part - (1)	406000
Goods available for sale	$78000 + $406000	484000
Less: Ending finished goods inventory	Given in question	25900
Unadjusted cost of goods sold	$484000 - $25900	458100
Add: Underapplied overhead	$226000 - $200000	26000
Adjusted Cost of goods sold	$458100 + $26000	484100

.

(3) -- Prepare an income statement.

Answer -

Income Statement

	Explanation	Amount ($)
Sales Revenue	Given in question	650000
Less: Cost of goods sold	Calculated in Part - (2)	484100
Gross Profit	$650000 - $484100	165900
Less: Selling Expenses	Given in question	104000
Less: Administrative Expenses	Given in question	46000
Net income	$165900 - $104000 - $46000	15900