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 $ 217,000 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 $ 357,000 Inventory balances at the beginning and end of the year were as follows: Beginning Ending Raw materials $ 59,000 $ 40,000 Work in process ? $ 30,000 Finished goods $ 37,000 ? The total manufacturing costs added to production for the year were $680,000; the cost of goods available for sale totaled $730,000; the unadjusted cost of goods sold totaled $661,000; and the net operating income was $33,000. 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

Ans:

Superior Company

1. Schedule of Cost of goods manufactured

Particulars	Amount ($)
Beginning Raw Materials Inventory	59000
Add: Raw Material Purchases	263000
Materials available for use	322000
Less; Ending Raw Materials Inventory	40000
Raw Materials used in production	282000
Direct Labour ($680000-$282000-$374000)	24000
Manufacturing Overhead applied to work in process	374000
Total manufacturing costs	680000
Add: Beginning Work in Process Inventory ($723000-$680000)	43000
Total work in process ($693000+$30000)	723000
Less: Ending Work in Process Inventory	30000
Cost of goods manufactured ($730000-$37000)	693000

2. Schedule of Cost of goods sold:

Partiulars	Amount ($)
Beginning finished goods inventory	37000
Add: Cost of goods manufactured (from 1)	693000
Cost of goods available for sale	730000
Less: Ending finished goods inventory	69000
Unadjusted cost of goods sold	661000
Less: Over applied overhead ($374000-$357000)	17000
Adjusted cost of goods sold	644000

3. Income Statement:

Particulars	Amount ($)	Amount ($)
Sales ($644000+$403000)		1047000
Less: Cost of goods sold		644000
Gross Margin ($370000+$33000)		403000
Less: Selling and administrative expenses
Selling expenses	217000
Administrative expenses	152000	370000
Net Operating Income		33000