Question

Babb Company 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	$	11,100		$	15,700
Work in process	$	32,200		$	14,100
Finished goods	$	101,000		$	120,000

  

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 17,700 machine-hours and incur $265,500 in manufacturing overhead cost. The following transactions were recorded for the year:

•	Raw materials were purchased, $415,000.
•	Raw materials were requisitioned for use in production, $410,400 ($379,000 direct and $31,400 indirect).
•	The following employee costs were incurred: direct labor, $331,000; indirect labor, $75,000; and administrative salaries, $151,000.
•	Selling costs, $111,000.
•	Factory utility costs, $22,000.
•	Depreciation for the year was $130,000 of which $112,000 is related to factory operations and $18,000 is related to selling, general, and administrative activities.
•	Manufacturing overhead was applied to jobs. The actual level of activity for the year was 14,900 machine-hours.
•	Sales for the year totaled $1,289,000.

  

Required:
a.	Prepare a schedule of cost of goods manufactured in good form. (Do not round predetermined overhead rate. Input all amounts as positive values. Omit the "$" sign in your response.)

    

Schedule of Cost of Goods Manufactured
Direct materials:
(Click to select)  Beginning work in process inventory  Raw materials inventory, beginning  Ending work in process inventory  Raw materials inventory, ending  Finished goods inventory, beginning	$
(Click to select)  Deduct  Add  :  (Click to select)  Raw materials inventory, ending  Purchases of raw materials  Ending work in process inventory  Beginning work in process inventory  Finished goods inventory, beginning
Total raw materials available
(Click to select)  Deduct  Add  :  (Click to select)  Raw materials inventory, ending  Ending work in process inventory  Purchases of raw materials  Raw materials inventory, beginning  Beginning work in process inventory
Raw materials used in production		$
(Click to select)  Deduct  Add  :  (Click to select)  Direct materials  Indirect labor  Indirect materials  Direct labor  Raw materials inventory, beginning
(Click to select)  Direct materials  Finished goods  Indirect materials  Indirect labor  Direct labor
(Click to select)  Ending work in process inventory  Purchases of raw materials  Direct labor  Raw materials inventory, beginning  Raw materials inventory, ending
(Click to select)  Purchases of raw materials  Manufacturing overhead applied to work in process  Direct labor  Raw materials inventory, beginning  Raw materials inventory, ending
Total manufacturing cost
(Click to select)  Deduct  Add  :  (Click to select)  Raw materials inventory, ending  Purchases of raw materials  Ending work in process inventory  Raw materials inventory, beginning  Beginning work in process inventory
(Click to select)  Add  Deduct  :  (Click to select)  Purchases of raw materials  Raw materials inventory, ending  Beginning work in process inventory  Ending work in process inventory  Raw materials inventory, beginning
Cost of goods manufactured		$

   

b.	Was the overhead underapplied or overapplied? By how much? (Do not round predetermined overhead rate. Input the amount as a positive value. Omit the "$" sign in your response.)

   

Manufacturing overhead  (Click to select)  overapplied  underapplied

$

  

c.

Prepare an income statement for the year in good form. Prepare off-line Cost of Goods Sold Statement and close any underapplied or overapplied overhead to Cost of Goods Sold and use the Adjusted Cost of Goods Sold to answer this requirement. (Input all amounts as positive values. Omit the "$" sign in your response.)

   

Income Statement
(Click to select)  Selling costs  Administrative salaries  Depreciation  Direct materials  Cost of goods sold (adjusted)  Sales		$
(Click to select)  Sales  Depreciation  Administrative salaries  Cost of goods sold (adjusted)  Selling costs
(Click to select)  Gross loss  Gross margin
Selling and administrative expenses:
(Click to select)  Rent expense  Administrative salaries  Insurance expense  Depreciation  Direct materials  Selling costs	$
(Click to select)  Direct materials  Depreciation  Insurance expense  Rent expense  Selling costs  Administrative salaries
(Click to select)  Administrative salaries  Depreciation  Rent expense  Direct materials  Selling costs  Insurance expense
(Click to select)  Net operating loss  Net operating income		$

N

Answer 1

Answer :-

a) A schedule of cost of goods manufactured are as follows :-

Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning	$ 11,100
Add:- Purchases of raw materials	$415,000
Total raw materials available	$426,100
Less :- Raw materials inventory, ending	$15,700
Raw materials used in production	$410,400
Less :- Indirect materials	$31,400
Direct materials		$379,000
Direct labor		$331,000
Manufacturing overhead applied (Note - 1)		$223,500
Total manufacturing cost		$933,500
Add: Beginning work in process inventory		$32,200
		$965,700
Deduct: Ending work in process inventory		$14,100
Cost of goods manufactured		$951,600

Note 1:-

To find out Manufacturing overhead applied we first find out predetermined overhead rate.

Predetermined overhead rate = Estimated total manufacturing overhead / Estimated total machine-hours

Estimated total manufacturing overhead = $265,500

Estimated total machine-hours = 17,700 machine-hours

Predetermined overhead rate = $265,500/ 17,700

Predetermined overhead rate = $15

Now we find Manufacturing overhead applied -

Manufacturing overhead applied = Actual total machine-hours × Predetermined overhead rate

Actual total machine-hours = 14,900 machine-hours

Manufacturing overhead applied = 14,900 × $15

Manufacturing overhead applied = $223,500

b) Overhead underapplied or overapplied

We first find out Actual manufacturing overhead cost incurred:

Particular	Amount
Actual manufacturing overhead cost incurred:
Indirect materials	$31,400
Indirect labor	$75,000
Factory utilities	$22,000
Factory depreciation	$112,000
Manufacturing overhead cost incurred	$240,400

Overhead underapplied or overapplied = Manufacturing overhead cost incurred - Manufacturing overhead applied

Overhead underapplied = $240,400 - $223,500

Overhead underapplied = $16,900

c) An income statement for the year are as follows :-

Income statement
Sales		$1,289,000
Cost of goods sold (adjusted)(Note - 2)		$949,500
Gross Margin (sales - cost of goods sold)		$339,500
Selling and administrative expenses:
Administrative salaries	$151,000
Selling costs	$111,000
Depreciation	$18,000
		$280,000
Net operating income (Gross Margin - selling and administrative expenses)		$59,500

Note 2 :-

Cost of goods sold (adjusted) are as follows :-

Particular	Amount
Beginning finished goods inventory	$101,000
Add :-Cost of goods manufactured	$951,600
Goods available for sale	$1,052,600
Less :- Ending finished goods inventory	$120,000
Unadjusted cost of goods sold	$932,600
Add :- Overhead Underapplied	$16,900
Cost of goods sold (adjusted)	$949,500