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	$	215,000
Purchases of raw materials	$	262,000
Direct labor		?
Administrative expenses	$	156,000
Manufacturing overhead applied to work in process	$	373,000
Actual manufacturing overhead cost	$	357,000

Inventory balances at the beginning and end of the year were as follows:

	Beginning of Year			End of Year
Raw materials	$	54,000		$	37,000
Work in process		?		$	30,000
Finished goods	$	40,000			?

The total manufacturing costs for the year were $685,000; the cost of goods available for sale totaled $720,000; the unadjusted cost of goods sold totaled $669,000; and the net operating income was $35,000. The company’s underapplied or overapplied overhead is closed to Cost of Goods Sold.

Required:

1.) Prepare T-accounts for Raw Materials, Work-in-Process, Finished Goods, Manufacturing overhead Clearing, and Cost of Goods Sold.

2.) Prepare schedules of cost of goods manufactured and cost of goods sold and an income statement. (Hint: Prepare the income statement and schedule of cost of goods sold first followed by the schedule of cost of goods manufactured.)

3.) Write journal entries for Superior Company for the following transactions for the period

1. 1. Purchase of raw material.
2. 2. Transfer of Raw material to Work-in-Process
3. 3. Application of Direct Labor to Work-in-Process
4. 4. Application of Manufacturing Overhead to Work-in-Process
5. 5. Transfer of Work-in-Process to Finished Goods
6. 6. Revenue for the sale of goods manufactured
7. 7. Cost of goods sold
8. 8. The incurrence of the actual overhead costs (use “various” to represent multiple accounts.)
9. 1. Clear the Overhead account.

Answer 1

1)T-Accounts:
DEBIT	AMOUNT $	CREDIT	AMOUNT $
Raw material a/c
OB	54000	WIP	279000
Purchase	262000	CB	37000
WIP a/c
OB	25000	FG	680000
D. Raw Mat	279000	CB	30000	(279000+33000+373000=685000)
D.Labor	33000
MOH applied	373000
Total	710000	Total	710000
FG a/c
OB	40000	COGS	669000
WIP	680000	CB	51000
Total	720000	Total	720000
Manuf. Overhead a/c
Actual incurred	357000	WIP	373000
COGS	16000
Cost of Goods Sold a/c
FG	669000	MOH	16000
		Inc State	653000
Income Statement a/c
COGS	653000	Sales	1059000
Selling Exp	215000
Admin Exp	156000
NOI	35000
2) Schedule of Cost of Goods Manufactured:
WIP - OB		25000
D. Raw Mat	279000
D.Labor	33000
MOH applied	373000
Manufacturing incurred		685000
Total WIP		710000
Less: WIP CB		30000
Cost of Goods Manufactured		680000
Schedule of Cost of Goods Sold:
FG OB	40000
Add:COGM	680000
Total available	720000
Less:FG CB	51000
Unadj. COGS	669000
Less:Over-applied OH	16000
Adj. COGS	653000
Income Statement :
Sales	1059000
Less COGS:	653000
Gross Profit	406000
Less expenses:
Selling Exp	215000
Admin Exp	156000
Total expenses	371000
NOI	35000

3) Journal Entries:
Date	Acc Title	Debit $	Credit $
a	Raw Material	262000
	Cash		262000
	(Purchase of RM)
b	WIP	279000
	Raw Material		279000
	(Material applied to production)
c	WIP	33000
	Payroll		33000
	(direct labor applied to production)
d	WIP	373000
	Manuf. Overhead		373000
	(overhead applied to production)
e	Finished Goods	680000
	WIP		680000
	(FG transferred from WIP)
f	Cash	1059000
	Sales Revenue		1059000
	(sales recorded)
g	COGS	669000
	FG		669000
	(cost of sales transferred from FG)
h	Manuf. Overhead	357000
	Cash		357000
	(overhead incurred)
i	Manuf. Overhead	16000
	COGS		16000
	(overapplied OH closed to COGS)