Question

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.

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: Raw materials Work in process Finished Goods Beginning Ending Balance Balance $ 14,150 $22,150 $ 27,150 $ 9,150 $ 62.150 $77.150 • 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 33,150 machine-hours and Incur $241,995 in manufacturing overhead cost. The following transactions were recorded for the year: • Raw materials were purchased, $315,150. • Raw materials were requisitioned for use in production, $307,150 ($280,850 direct and $26,300 indirect). • The following employee costs were incurred: direct labor, $377,150; indirect labor, 596,150, and administrative salaries, $172.150. • Selling costs, $147,150. • Factory utility costs, $10,150. • Depreciation for the year was $136,000 of which $120,300 is related to actory operations and $15,700 is related to seling, general, and administrative activities. • Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,030 machine-hours. • Sales for the year totaled $1,259,000. 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. Complete this question by entering your answers in the table below. Required A Required B Required Prepare a schedule of cost of goods manufactured, Baab Corporation

Answer 1

Solution A:

Predetermined overhead rate = Estimated overhead / Estimated machine hours = $241,995 / 33150 = $7.30 per machine hour

Baab Corporation
Schedule of cost of goods manufactured
Particulars	Details	Amount
Direct Material:
Beginning material inventory	$14,150.00
Cost of material purchased	$315,150.00
Cost of material available	$329,300.00
Less: Ending material inventory	$22,150.00
Total material used	$307,150.00
Less: Indirect material used	$26,300.00
Direct material used		$280,850.00
Direct labor		$377,150.00
Manufacturing overhead applied (34030 * $7.30)		$248,419.00
Total manufacturing cost for the year		$906,419.00
Add: Beginning WIP		$27,150.00
Total cost of work in process during the year		$933,569.00
Less: Ending WIP		$9,150.00
Cost of goods manufactured		$924,419.00

Solution B:

Computation of Adjusted Cost of goods sold
Particulars	Amount
Cost of goods manufactured	$924,419.00
Add: Beginning finished goods inventory	$62,150.00
Less: Ending finished goods inventory	$77,150.00
Unadjusted cost of goods sold	$909,419.00
Add: Underapplied overhead ($26,300 + $96,150 + $10,150 + $120,300 - $248,419)	$4,481.00
Adjusted cost of goods sold	$913,900.00

Solution C:

Baab Corporation
Income Statement
Particulars	Details	Amount
Sales		$1,259,000.00
Cost of goods sold		$913,900.00
Gross Profit		$345,100.00
Selling and administrative expenses
Administrative salaries	$172,150.00
Selling Costs	$147,150.00
Depreciation Expense	$15,700.00
Total Selling and administrative expenses		$335,000.00
Net Income		$10,100.00