Question

TB Problem Qu. 3-252 Baab Corporation is a ...

Baab Corporation is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year:

	Beginning Balance		Ending Balance
Raw materials	$	14,700	$	22,700
Work in process	$	27,700	$	9,700
Finished Goods	$	62,700	$	77,700

The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 33,700 machine-hours and incur $283,080 in manufacturing overhead cost. The following transactions were recorded for the year:

• Raw materials were purchased, $315,700.
• Raw materials were requisitioned for use in production, $307,700 ($280,300 direct and $27,400 indirect).
• The following employee costs were incurred: direct labor, $377,700; indirect labor, $96,700; and administrative salaries, $172,700.
• Selling costs, $147,700.
• Factory utility costs, $10,700.
• Depreciation for the year was $169,000 of which $154,000 is related to factory operations and $15,000 is related to selling, general, and administrative activities.
• Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,140 machine-hours.
• Sales for the year totaled $1,300,000.

Required:

a. Prepare a schedule of cost of goods manufactured.

b. Was the overhead underapplied or overapplied? By how much?

c. Prepare an income statement for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

Answer 1

Solution: Baab Corporation Schedule of Cost of Goods Manufactured Direct materials: Raw materials inventory, beginning Purchases of raw materials Materials available for use Raw materials inventory, ending Materials used in production Deduct : Indirect materials Direct materials Direct labor Manufacturing overhead applied to work in process (34140*8.4)** Total manufacturing costs Add: Work in process, beginning 14,700 315,700 330,400 22,700 307,700 27400 280,300 377,700 286,776 944,776 27,700 972,476 9,700 962,776 Deduct: Work in process, ending Cost of goods manufactured 1,300,000 949,800 350,200 Baab Corporation Income Statement Sales Cost of goods sold (Note 1) Gross margin Selling and administrative expenses: Administrative salaries Selling costs Depreciation expense Net operating income 172,700 147,700 15,000 335,400 14,800 8.40 **Overehead rate=Estimated MOH/Estimated MH 283080/33700

Note 1: Baab Corporation Schedule of cost of goods sold: Finished goods inventory, beginning Add: Cost of goods manufactured Goods available for sale Deduct finished goods inventory, ending Unadjusted cost of goods sold Add: Underapplied overhead *** Adjusted cost of goods sold 62,700 962,776 1,025,476 77,700 947,776 2,024 949,800 ***under/ over applied overhead Indirect material Indirect labor Factory utility costs Factory Depreciation Actual manufacturing over head Overhead applied=34140*8.4 Under applied overhead 27400 96700 10700 154000 288800 286776 2024