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	$	261,000
Direct labor		?
Administrative expenses	$	158,000
Manufacturing overhead applied to work in process	$	378,000
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	$	54,000		$	33,000
Work in process		?		$	26,000
Finished goods	$	35,000			?

The total manufacturing costs for the year were $685,000; the cost of goods available for sale totaled $735,000; the unadjusted cost of goods sold totaled $663,000; 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

Prepare an income statement for the year.

Sales	1055000
Less: cost of goods sold	(644000)
Gross profit	411000
Less: Operating expenses
Administrative expenses	(158000)
Selling expenses	(218000)
Net operating income	35000

Schedule of cost of goods sold :

Beginning finished goods inventory	35000
Add: Cost of goods manufactured	700000
Cost of goods available for sale	735000
Less; Ending finished goods inventory	(72000)
Unadjusted cost of goods sold	663000
Less: Over applied overhead	(19000)
Adjusted cost of goods sold	644000

Schedule of cost of goods manufactured :

Direct material
Beginning raw material inventory	54000
Add: material purchase	261000
material available for use	315000
Less: Ending raw material inventory	(33000)
Direct material used in production		282000
Direct labour		25000
Applied manufacturing overhead		378000
Total manufacturing cost		685000
Add: Beginning work in process		41000
Total cost of work in process		726000
Less: Ending work in process		(26000)
Cost of goods manufactured		700000