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: Raw materials Work in process Finished Goods Beginning Ending Balance Balance $ 14,050 $22,050 $ 27,050 $ 9,050 $ 62,050 $77,050 • 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 33,050 machine-hours and incur $234,655 in manufacturing overhead cost. The following transactions were recorded for the year: • Raw materials were purchased, $315,050. • Raw materials were requisitioned for use in production, $307,050 ($280,950 direct and $26.100 indirect). • The following employee costs were incurred: direct labor, $377,050; indirect labor, $96,050; and administrative salaries, $172,050. • Selling costs, $147,050. Factory utility costs, $10,050. • Depreciation for the year was $130,000 of which $120,100 is related to factory operations and $9,900 is related to selling, general, and administrative activities. • Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,010 machine-hours. • Sales for the year totaled $1,255,000. 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.

Answer 1

a) Schedule of cost of goods manufactured is shown as follows:- (Amounts in $)

Baab Corporation
Schedule of Cost of Goods Manufactured
Direct Materials:
Beginning raw materials	14,050
Raw materials purchased	315,050
Total raw materials available	329,100
Ending raw materials	(22,050)
Raw materials used in production	307,050
Indirect materials used	(26,100)
Direct materials used		280,950
Direct Labor		377,050
Manufacturing overheads applied (34,010 hrs*$7.1 per hr) (see note 1 below)		241,471
Total manufacturing costs		899,471
Beginning work in process		27,050
		926,521
Ending work in process		(9,050)
Cost of goods manufactured		917,471

Note 1) Predetermined overhead rate per hour = Estimated Overhead/Estimated Machine hours

= $234,655/33,050 hrs = $7.10 per hour

b) For calculating underapplied or overapplied overheads we need to calculate actual manufacturing overheads which is shown as follows:-

Calculation of Actual Manufacturing Overheads (Amounts in $)

Indirect materials	26,100
Indirect labor	96,050
Factory utilities cost	10,050
Depreciation related to factory operations	120,100
Total actual manufacturing overhead	252,300

Manufacturing overheads applied = $241,471 (From part a)

Manufacturing Overheads Underapplied = Actual Overhead - Overheads applied

= $252,300 - $241,471 = $10,829

Therefore the overhead is under-applied by $10,829.

c) Unadjusted cost of goods sold = Beg finished goods+Cost of goods manufactured-Ending Finished Goods

= $62,050+$917,471-$77,050 = $902,471

Adjusted cost of goods sold = Unadjusted COGS+Under-applied Overheads

= $902,471+$10,829 = $913,300

Income Statement for the year is shown as follows:- (Amounts in $)

Baab Corporation
Income Statement
Sales		1,255,000
Adjusted Cost of Goods Sold		(913,300)
Gross Profit (A)		341,700
Selling and administrative expenses:
Administrative salaries	172,050
Selling costs	147,050
Depreciation related to selling and administration	9,900
Total selling and administrative expenses (B)		329,000
Net Income (A-B)		12,700