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	$	213,000
Purchases of raw materials	$	263,000
Direct labor		?
Administrative expenses	$	152,000
Manufacturing overhead applied to work in process	$	374,000
Actual manufacturing overhead cost	$	356,000

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

	Beginning of Year			End of Year
Raw materials	$	50,000		$	36,000
Work in process		?		$	23,000
Finished goods	$	30,000			?

The total manufacturing costs for the year were $680,000; the cost of goods available for sale totaled $745,000; the unadjusted cost of goods sold totaled $667,000; and the net operating income was $31,000. The company’s underapplied or overapplied overhead is closed to Cost of Goods Sold.

Required:

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.)

Answer 1

SUPERIOR COMPANY
SCHEDULE OF COST OF GOODS MANUFACTURED
	$	$
Direct materials:
Beginning Raw materials inventory	50,000.00
Add: Raw materials purchases	263,000.00
Raw materials available for use	313,000.00
Less: Ending Raw materials inventory	(36,000.00)
Raw materials used in production		277,000.00
Direct labor (680,000-374,000-277,000)		29,000.00
Manufacturing Overhead applied to work in process		374,000.00
Total manufacturing costs (Given)		680,000.00
Add: Beginning Work in process inventory		58,000.00
Total cost of work in process		738,000.00
Less: Ending Work in process inventory		(23,000.00)
Cost of goods manufactured		715,000.00
SUPERIOR COMPANY
Schedule of cost of goods sold
	$
Beginning Finished Goods	30,000.00
Add: Cost of goods manufactured	715,000.00
Cost of goods available for sale	745,000.00
Less: Ending Finished Goods	(78,000.00)
Unadjusted Cost of goods sold	667,000.00
Less: Over applied overhead ($356,000 ‒$374,000)	(18,000.00)
Adjusted Cost of goods sold	649,000.00

SUPERIOR COMPANY
Income Statement
	$	$
Sales		1,045,000.00
Less: Cost of goods sold		649,000.00
Gross margin		396,000.00
Selling and administrative expenses:
Selling Expenses	213,000.00
Administrative Expense	152,000.00	365,000.00
Net operating income (Given)		31,000.00