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: Raw materials Work in process Finished Goods Beginning Ending Balance Balance $ 15,000 $23,000 $ 28,000 $10,000 $ 63,000 $78,000 • 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 34,000 machine-hours and incur $306,000 in manufacturing overhead cost. The following transactions were recorded for the year: • Raw materials were purchased, $316,000. • Raw materials were requisitioned for use in production, $308,000 ($280,000 direct and $28,000 indirect). • The following employee costs were incurred: direct labor, $378,000; indirect labor, $97,000; and administrative salaries, $173,000. Selling costs, $148,000. Factory utility costs, $11,000. Depreciation for the year was $187,000 of which $174,000 is related to factory operations and $13,000 is related to selling, general, and administrative activities. Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,200 machine-hours. • Sales for the year totaled $1,330,000. .

Answer 1

Requirement 1:

Baab Corporation

Schedule of Cost of Goods Manufactured

Particulars	$	$
Direct Materials
Raw materials Inventory, Beginning	15,000
Add: Purchases of raw materials	316,000
Total raw materials available	331,000
Less: Raw materials Inventory, Ending	23,000
Raw materials used in production	308,000
Less: Indirect Materials	28,000	280,000
Direct Labor		378,000
Manufacturing Overhead applied (34,200 * $9)		307,800
Total Manufacturing Costs		965,800
Add: Beginning Work in process Inventory		28,000
Total cost of work in process		993,800
Less: Ending work in process Inventory		10,000
Cost of goods manufactured		983,800

Working Notes:

Predetermined manufacturing overhead rate = Total Manufacturing Overheads / Total machine hours

Predetermined manufacturing Overhead rate = $306,000 / 34,000 machine hours = $9.00 per machine hour

Requirement 2:

Under or over applied overheads

Applied manufacturing Overheads = 34,200 machine hours * $9.00 per machine hour = $307,800

Actual manufacturing overheads = $28,000 + $97,000 + $11,000 + $174,000 = $310,000

Underapplied Overheads = $310,000 - $307,800 = $2,200

Requirement 3:

Baab Corporation

Income Statement

Particulars	$	$
Sales		1,330,000
Less: Cost of goods sold		971,000
Gross profit		359,000
Less: Selling and administrative expenses
Administrative salaries	173,000
Selling cost	148,000
Depreciation expense	13,000
Total Selling and administrative expenses		334,000
Net Income		25,000

Working Notes:

Adjusted cost of goods sold

Particulars	$
Cost of goods manufactured	983,800
Add: Beginning finished goods Inventory	63,000
Cost of goods available for sale	1,046,800
Less: Ending finished goods Inventory	78,000
Unadjusted cost of goods sold	968,800
Add: Under applied overhead	2,200
Adjusted cost of goods sold	971,000

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