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 $ 211,000 Purchases of raw materials $ 267,000 Direct labor ? Administrative expenses $ 158,000 Manufacturing overhead applied to work in process $ 375,000 Actual manufacturing overhead cost $ 359,000 Inventory balances at the beginning and end of the year were as follows: Beginning of Year End of Year Raw materials $ 57,000 $ 34,000 Work in process ? $ 26,000 Finished goods $ 38,000 ? The total manufacturing costs for the year were $675,000; the cost of goods available for sale totaled $730,000; the unadjusted cost of goods sold totaled $666,000; and the net operating income was $39,000. 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

A B C $ 1,058,000 $ 650,000 $ 408,000 $ 211,000 $ 158,000 $ 369,000 $ 39,000 1 Superior Company 2 Income Statement 3 Sales 4 Cost of goods sold 5 Gross margin 6 Selling and administrative expenses: 7 Selling expenses 8 Administrative expense 9 Net operating income 10 11 Superior Company 12 Schedule of Cost of Goods Sold 13 Finished goods inventory, beginning 14 Add: Cost of goods manufactured 15 Cost of goods available for sale 16 Less: Finished goods inventory, ending 17 Unadjusted cost of goods sold 18 Less: Overapplied overhead 19 Adjusted cost of goods sold $ 38,000 $ 692,000 $ 730,000 $ 64,000 $ 666,000 $ 16,000 $ 650,000

20 21 Superior Company 22 Schedule of Cost of Goods Manufactured 23 Direct materials: 24 Raw materials inventory, beginning $ 57,000 25 Add: Purchases of raw materials $ 267,000 26 Total raw materials available $ 324,000 27 Less: Raw materials inventory, ending $ 34,000 28 Raw materials used in production 29 Direct labor 30 Manufacturing overhead applied to work in process inventory 31 Total manufacturing costs 32 Add: Beginning work in process inventory 33 34 Less: Ending work in process inventory 35 Cost of goods manufactured $ 290,000 $ 10,000 $ 375,000 $ 675,000 $ 43,000 $ 718,000 $ 26,000 $ 692,000

A B с =+C5+C4 =+B19 =+C8+C9 211000 158000 =+B7+B8 39000 1 Superior Company 2 Income Statement 3 Sales 4 Cost of goods sold 5 Gross margin 6 Selling and administrative expenses: 7 Selling expenses 8 Administrative expense 9 Net operating income 10 11 Superior Company 12 Schedule of Cost of Goods Sold 13 Finished goods inventory, beginning 14 Add: Cost of goods manufactured 15 Cost of goods available for sale 16 Less: Finished goods inventory, ending 17 Unadjusted cost of goods sold 18 Less: Overapplied overhead 19 Adjusted cost of goods sold 38000 =+B15-B13 730000 =+B15-B17 666000 =375000-359000 =+B17-B18

20 21 Superior Company 22 Schedule of Cost of Goods Manufactured 23 Direct materials: 24 Raw materials inventory, beginning 57000 25 Add: Purchases of raw materials 267000 26 Total raw materials available =+B24+B25 27 Less: Raw materials inventory, ending 34000 28 Raw materials used in production 29 Direct labor 30 Manufacturing overhead applied to work in process inventory 31 Total manufacturing costs 32 Add: Beginning work in process inventory 33 34 Less: Ending work in process inventory 35 Cost of goods manufactured =+B26-B27 =+C31-C28-C30 375000 675000 =+C33-C31 =+C35+C34 26000 =+B14