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	$	219,000
Purchases of raw materials	$	261,000
Direct labor		?
Administrative expenses	$	155,000
Manufacturing overhead applied to work in process	$	364,000
Actual manufacturing overhead cost	$	351,000

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

	Beginning			Ending
Raw materials	$	59,000		$	36,000
Work in process		?		$	30,000
Finished goods	$	32,000			?

The total manufacturing costs added to production for the year were $685,000; the cost of goods available for sale totaled $730,000; the unadjusted cost of goods sold totaled $668,000; 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 $ 59,000 Add: Purchases of raw materials $ 261,000 Total raw materials available $ 320,000 Less: Ending raw materials inventory $ 36,000 Raw materials used in production Direct Labor Manufacturing Overhead applied to work in proces Total manufacturing costs Add: Beginning work in process inventory $ $ $ $ $ $ $ $ 284,000 37,000 364,000 685,000 43,000 728,000 30,000 698,000 Less: Ending work in process inventory Cost of Goods manufactured $ SUPERIOR COMPANY Schedule of Cost of Goods Sold Beginning finished goods inventory $ Add: Cost of Goods manufactured $ Cost of goods available for sale $ Less: Ending finished goods inventory Unadjusted cost of goods sold Less: Overapplied overhead Adjusted cost of goods sold 32,000 698,000 730,000 62,000 $ $ $ 668,000 13,000 655,000

SUPERIOR COMPANY Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses $ 1,060,000 $ 655,000 $ 405,000 $ $ 219,000 155,000 $ $ 374,000 31,000 Net Operating Income

Manufacturing costs = Raw materials used + Direct labor + Manufacturing overhead applied
$685,000 = $284,000 + Direct labor + $364,000
Direct labor = $37,000

Cost of goods available for sale = Beginning finished goods inventory + Cost of goods manufactured
$730,000 = $32,000 + Cost of goods manufactured
Cost of goods manufactured = $698,000

Cost of goods manufactured = Beginning work in process + Manufacturing costs - Ending work in process
$698,000 = Beginning work in process + $685,000 - $30,000
Beginning work in process = $43,000

Unadjusted cost of goods sold = Cost of goods available for sale - Ending finished goods inventory
$668,000 = $730,000 - Ending finished goods inventory
Ending finished goods inventory = $62,000

Overapplied overhead = Manufacturing overhead applied - Actual manufacturing overhead
Overapplied overhead = $364,000 - $351,000
Overapplied overhead = $13,000

Net operating income = Gross margin - Selling expenses - Administrative expenses
$31,000 = Gross margin - $219,000 - $155,000
Gross margin = $405,000

Gross Margin = Sales - Cost of Goods Sold
$405,000 = Sales - $655,000
Sales = $1,060,000