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	$	218,000
Purchases of raw materials	$	264,000
Direct labor		?
Administrative expenses	$	160,000
Manufacturing overhead applied to work in process	$	368,000
Actual manufacturing overhead cost	$	357,000

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

	Beginning of Year			End of Year
Raw materials	$	57,000		$	36,000
Work in process		?		$	32,000
Finished goods	$	37,000			?

The total manufacturing costs for the year were $680,000; the cost of goods available for sale totaled $740,000; the unadjusted cost of goods sold totaled $660,000; and the net operating income was $35,000. 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

Solution:

In the questions, reverse calculation of amounts will be done as represented in the below tables:

Superior Company
Income Statement
Sales ($413000+649000)	$10,62,000
Less: Cost of goods sold [$660000- ($368000-$357000)]	$6,49,000
Gross Profit ($35000+$218000+$160000)	$4,13,000
Less: Expenses:
Selling Expenses	$2,18,000
Administrative expense	$1,60,000
Net operating income	$35,000

Superior Company
Schedule of cost of goods sold
Cost of goods manufactured (740000-37000)	$7,03,000
Add: Finished Goods, Beginning	$37,000
Total cost of goods available for sale	$7,40,000
Less: Finished Goods, Ending ($740000-$660000)	$80,000
Unadjusted Cost of goods Sold	$6,60,000
Less: Overapplied Overhead ($368000-$357000)	$11,000
Cost of goods Sold	$6,49,000

Superior Company
Schedule of cost of goods manufactured
Direct Material:
Raw Material, Beginning	$57,000
Add: Purchase of Raw Material	$2,64,000
Total Raw material available	$3,21,000
Less: Raw Material, Ending	$36,000
Raw material used in production		$2,85,000
Direct Labor cost ($680,000-285,000-368,000)		$27,000
Applied Manufacturing Overhead		$3,68,000
Total Manufacturing Costs		$6,80,000
Add: Work in Process, Beginning ($735000-$680000)		$55,000
Subtotal ($703,000+$32,000)		$7,35,000
Less: Work in Process, Ending		$32,000
Cost of goods manufactured ($740000-$37000)		$7,03,000