Question

SSI Inc. 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... BB: $21,000, EB: $24,000

Work in Process... BB: $40,000, EB: $22,000

Finished goods... BB: $26,000, EB: $41,000

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 38,000 machine-hours and incur $266,000 in manufacturing overhead cost. The following transactions were recorded for the year:
· Raw materials were purchased $300,000.
· Raw materials were requisitioned for use in production, $297,000 $(281,000 direct and $16,000 indirect).
· The following employee costs were incurred: direct labor, $389,000; indirect labor, $62,000; and administrative salaries, $176,000.
· Selling costs, $160,000.
· Factory utility costs, $19,000.
· Depreciation for the year was $143,000 of which $137,000 is related to factory operations and $6,000 is related to selling, general, and administrative activities.
· Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,000 machine-hours.
· Sales for the year totaled $1,283,000.
Required:

a. Prepare a schedule of cost of goods manufactured in good form.
b. Was the overhead underapplied or overapplied? By how much?
c. Prepare an income statement for the year in good traditional form. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

a. Schedule of cost of goods manufactured b. Overhead underapplied or overapplied c. Income Statement

  

  

Answer 1

a. b. Manufacturing Overhead:Over applied; $4000 SSI INC. Schedule of Cost of Goods Manufactured Direct Materials Raw Material Inventory, Beginning $ 21,000 Add: Purchases of Raw Materials $ 300,000 Total Raw Materials available $ 321,000 Less: Raw Material Inventory, Ending $ 24,000 Raw Material Used in Production $ 297,000 Less: Indirect Material used $ 16,000 Direct Labor Manufacturing Overhead applied Total Manufacturing Costs incurred Add: Work in process Inventory, Beginning Total Cost of Work in process Less: Work-in-process Inventory, Ending Cost of goods manufactured Overhead Under-Over applied: Actual Manufacturing Overhead: Indirect Materials Indirect Labor Factory Utility Cost Depreciation-Factory Manufacturing Cost incurred Manufacturing Cost Applied* Over applied OH $ 16,000 $ 62,000 $ 19,000 $ 137,000 $ 234,000 $ 238,000 $ 4,000 $ $ $ $ 281,000 389,000 238,000 908,000 40,000 948,000 22,000 926,000 $ *If Applied OH is exccced Incuurred OH Then, Over-applied OH. $ $ $

C. $ $ SSI INC. Income Statement Sales $ 1,283,000 Adjusted Cost of goods sold: $ 907,000 Gross Margin $ 376,000 Less:Selling and Administrative Expense: Selling expenses $160,000 Administrative salaries $176,000 Depreciation-Selling and administrative $ 6,000 $ 342,000 Net Operating Income $ 34,000 Workings: 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 $ $ $ 26,000 926,000 952,000 41,000 911,000 4,000 907,000 $ $ *Predetermined OH Rate= Estimated MOH Cost / Estimated MH; *Predetermined OH Rate= $266,000 / 38,000 MH; *Predetermined OH Rate= $7/MH. * Actual OH Applied = 34,000 MH* Predetermined OH Rate; *Actual OH Applied = 34,000 MH *$7; *Actual OH Applied = $238,000;

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