Question

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:

	Beginning Balance		Ending Balance
Raw materials	$	14,300	$	22,300
Work in process	$	27,300	$	9,300
Finished Goods	$	62,300	$	77,300

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 33,300 machine-hours and incur $253,080 in manufacturing overhead cost. The following transactions were recorded for the year:

• Raw materials were purchased, $315,300.
• Raw materials were requisitioned for use in production, $307,300 ($280,700 direct and $26,600 indirect).
• The following employee costs were incurred: direct labor, $377,300; indirect labor, $96,300; and administrative salaries, $172,300.
• Selling costs, $147,300.
• Factory utility costs, $10,300.
• Depreciation for the year was $145,000 of which $127,000 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 34,060 machine-hours.
• Sales for the year totaled $1,265,000.

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.

Answer 1

Answer with working notes is given below

Baab Corporation Schedule of Cost of Goods Manufactured Direct Material Opening inventory of Raw Material $14,300 Add: purchases $315,300 Total Raw Material Available $329,600 Less: Closing inventory of Raw Material $22,300 Raw material used in production $307,300 Less: Indirect material used $26,600 Direct material consumed Direct Labor Prime Cost Manufacturing Overhead applied Total manufacturing cost Add: Opening work in process inventory $280,700 $377,300 $658,000 $258,856 (34,060 * $7.60) $916,856 $27,300 $944,156 $9,300 $934,856 Less: Closing work in process inventory Cost of Goods Manufactured Working note: Machine hour rate Total overheads Machine hours 253,080 33,300 $7.60 b) Under-applied overheads Indirect material Indirect labor utility Depreciation Total Actual factory overheads Factory overhead applied Under-applied overheads $26,600 $96,300 $10,300 $127,000 $260,200 $258,856 (34,060 * $7.60) $1,344 Baab Corporation Income Statement For the year ended December 31, 2017 Amount $1,265,000 $921,200 As per working note below $343,800 Sales Less: Cost of Goods Sold Gross profit Less: Operating expenses Administrative salaries Selling costs Depreciation expense Net profit $172,300 $147,300 $18,000 $337,600 $6,200 Baab Corporation Schedule of Cost of Goods Sold Opening Finished Goods inventory Add: Cost of Goods manufactured Cost of Goods available for sale Less: Closing Finished Goods inventory Unadjusted Cost of Goods Sold Add: Under-applied overhead Adjusted Cost of Goods sold $62,300 $934,856 As per working above $997,156 $77,300 $919,856 $1,344 $921,200