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	$	11,000		$	15,400
Work in process	$	32,300		$	14,000
Finished goods	$	102,000		$	125,000

  

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 17,100 machine-hours and incur $256,500 in manufacturing overhead cost. The following transactions were recorded for the year:

•	Raw materials were purchased, $414,000.
•	Raw materials were requisitioned for use in production, $409,600 ($377,000 direct and $32,600 indirect).
•	The following employee costs were incurred: direct labor, $331,000; indirect labor, $74,000; and administrative salaries, $150,000.
•	Selling costs, $113,000.
•	Factory utility costs, $25,000.
•	Depreciation for the year was $124,000 of which $113,000 is related to factory operations and $11,000 is related to selling, general, and administrative activities.
•	Manufacturing overhead was applied to jobs. The actual level of activity for the year was 14,100 machine-hours.
•	Sales for the year totaled $1,284,000.

  

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

$

  

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

Answer 1

a) Prepare a schedule of cost of goods manufactured in good form

Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning	$ 11000
Add  : Purchases of raw materials	414000
Total raw materials available	425000
Deduct : Raw materials inventory, ending	15400
Raw materials used in production		$ 409600
Deduct  : Indirect materials		32600
Direct materials		377000
Direct labor		331000
Manufacturing overhead applied to work in process		211500
Total manufacturing cost		$ 919500
Add : Beginning work in process inventory		32300
		951800
Deduct  : Ending work in process inventory		14000
Cost of goods manufactured		$ 937800

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

= $256500/17100= $15 per machine hour

Manufacturing overhead applied= 14100*$15= $211500

b) Actual manufacturing overhead= Indirect materials+Indirect labor+Factory utility+Factory depreciation

= $32600+74000+25000+113000= $244600

Overapplied or underapplied overhead= Actual manufacturing overhead-Manufacturing overhead applied

= $244600-211500= $33100 underapplied

c) Calculation of Adjusted cost of goods sold

Unadjusted cost of goods sold= Finished goods, beginning+Cost of goods manufactured-Finished goods, ending

= $102000+937800-125000= $914800

Adjusted cost of goods sold= Unadjusted cost of goods sold+Underapplied overhead

= $914800+33100= $947900

Income Statement
Sales		$1284000
Cost of goods sold (adjusted)		947900
Gross margin		336100
Selling and administrative expenses:
Administrative salaries	$ 150000
Selling costs	113000
Depreciation	11000
		274000
Net operating income		$ 62100