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 Purchanen of raw materials Direct labor Adninistrative expenses Manufacturing overhead applied to work in PrOCCG Actual manufacturing overhead cost $218,000 $270,000 $150,000 $364, 000 $350,000 Inventory baiances at the beginning and end of the year were as follows: Beginning End of of YearYear Raw materials $54,000 $35,000 Work in procesS Finished goods $37,000 2 $26,000 The total menufacturing costs for the year were $675.000: the cost of goods aveiabe for sale tota ed $725.000; the unadjusted cost of goods sold totaied $665,000: and the net operating income was $33,000 Tre company's underapplied or overapplied overhead is closed to Cost o Goods Sold Required: income statement and schedule of cost of goods sod first tollowed by the scheduie of cost of goods manufactureaj Prepare scheduses of cost of goods manufactured and cost of goods soid and an income statement (Hint Prepare the Complete this question by entering your answers in the tabs below Income: COGS COGM Statem Schedule Schedule Prepare an income statement for the year Superior Companyl Income Statement Sales Cost of goods sold Gross margin Selling and admnistrative coos

Answer 1

For the purpose of preparing an Income Statement we need to first calculate the Cost Of Goods Manufactured and Cost Of Goods Sold.

1. Let's first make a schedule of Cost of Goods Manufactured as below :

Cost of Goods Manufactured

Work in Process (At Beginning) [Note-1]		$39000
Add: Total Manufacturing Costs
Raw Material [Note-2]	$289000
Direct Labour [Note-3]	$22000
Manufacturing Overhead [Given in Question]	$364000	$675000
Total Work in Process		$714000
Less: Work in Process (At End) [Given in Question]		$26000
Cost of Goods Manufactured		$688000

• Note-1 :
  As we know Cost of goods available for sale is $725000 and opening inventory of Finished Goods is $37000,
  we can calculate for Cost of Goods Manufactured as follows :
  Cost of Goods Manufactured = Cost of goods Available for Sale - Finished Goods (At Beg)
  Cost of Goods Manufactured = $725000 - $37000 = $688000
  
  For the purpose of calculating the opening inventory of Work in process, we can use the following equation of Cost of Goods Manufactured, which is as follows :
  Cost of Goods Manufactured = Work in Progress (At Beg.) + Total Manufacturing Cost - Work in Progress (At End)
  We know, Cost of Goods Manufactured is $688000, Work in Progress (At End) is $26000, and total Manufacturing cost is $675000. Accordingly, we can solve for Work in Progress (At Beg.) as :
  Work in Progress (At Beg.) = Cost of Goods Manufactured - Total Manufacturing Cost + Work in Progress (At End)
  Work in Progress (At Beg.) = $688000 - $675000 + $26000
  Work in Progress (At Beg.) = $39000
  
• Note-2 :
  Since, we are not given the amount of Raw Material Used, we can solve for the same as below :
  Raw Material Used = Raw Material (At Beg.) + Raw Material Purchased - Raw Material (At End)
  Raw Material Used = $54000 + $270000 - $35000
  Raw Material Used = $289000
  
• Note-3 :
  Since we know the Total Manufacturing cost, Raw Material Used and Manufactuing Overhead, we can solve for Direct Labour cost using following equation :
  Total Manufacturing Cost = Raw Material Used + Direct Labour + Manufacturing Overhead
  Accordingly, Direct Labour = Total Manufacturing Cost - Raw Material Used - Manufacturing Overhead
  Direct Labour = $675000 - $289000 - $364000
  Direct Labour = $22000

2. Now, Let's make a schedule of Cost of Goods Sold as below :

Cost of Goods Sold

Finished Goods (At Beg.) [Given in Question]	$37000
Cost of Goods Manufactured [As calculated above in Pt.1]	$688000
Cost of Goods available for Sale	$725000
Less: Finished Goods (At End) [Note-4]	$60000
Unadjusted Cost of Goods Sold	$665000
Less: Under-applied Manufacturing Overhead [Note-5]	$14000
Adjusted Cost of Goods Sold	$651000

• Note-4 :
  For the purpose of calculating Finished Goods (At End), we can use the following equation :
  Cost of Goods Sold = Cost of goods available for sale - Finished Goods (At End)
  Accordingly, Finished Goods (At End) = Cost of goods available for sale - Cost of Goods Sold
    Finished Goods (At End) = $725000 - $665000
  Finished Goods (At End) = $60000
• Note-5 :
  We know Actual Manufacturing Overhead of $350000 is lower than Manufacturing Overhead applied to Work in Progress of $364000. This is known as Under applied manufacturing overhead cost and is computed as below :
  Under applied manufacturing cost = $364000 - $350000
  Under applied manufacturing cost = $14000

3. Now, since we have calculated the adjusted Cost of Goods Sold, we can prepare an Income Statement after Calculating our Sales figure (Since, in the Question, Net operating income is given, but sales is missing).
So, Let's first calculate Sales from the following equation :
Net Operating Income = Sales - Cost of Goods Sold - Selling Expenses - Admin. expenses
Accordingly, Sales = Net Operating Income + Cost of Goods Sold + Selling Expenses + Admin. expenses
Sales = $33000 + $651000 + $218000 + $150000
Sales = $1052000
Finally, here is the Income Statement :

Income Statement

Sales		$1052000
Less: Cost of Goods Sold (Adjusted)		$651000
Gross Profit		$401000
Less: Expenses
Selling Expenses	$218000
Admin. Expenses	$150000	$368000
Net Operating Income		$33000