Question

Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials): $ 219,000 $ 265,000 Selling expenses Purchases of raw materials Direct labor Administrative expenses Manufacturing overhead applied to work in process Actual manufacturing overhead cost $ 154,000 $ 375,000 $ 357,000 Inventory balances at the beginning and end of the year were as follows: Raw materials Work in process Finished goods Beginning of Year End of Year $ 52,000 $ 35,000 ? $ 32,000 $ 37,000 The total manufacturing costs for the year were $690,000; the cost of goods available for sale totaled $730,000; the unadjusted cost of goods sold totaled $670,000; and the net operating income was $37,000. 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

Part A

Superior company Income statement
Sales		1062000
Cost of goods sold		652000
Gross margin		410000
Selling and administrative expenses
Selling expenses	219000
Administrative expenses	154000
		373000
Net operating income		37000

Cost of goods sold = unadjusted cost of goods sold – overapplied overhead = 670000-(375000-357000)

Part B

Superior Company Schedule of Cost of Goods Sold
Finished goods inventory, beginning		37000
Add: Cost of goods manufactured		693000
Cost of goods available for sale		730000
Deduct: Finished goods inventory, ending		60000
Unadjusted cost of goods sold		670000
Add: : overapplied overhead		18000
Adjusted cost of goods sold		652000

Overapplied overhead =375000-357000 = 18000

Part C

Superior Company Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning	52000
Add : Purchases of raw materials	265000
Total raw materials available	317000
Deduct  : Raw materials inventory, ending	35000
Raw materials used in production		282000
Direct labor		33000
Manufacturing overhead applied to work in process inventory		375000
Total manufacturing cost		690000
Add: : Beginning work in process inventory		35000
Deduct: Ending work in process inventory		32000
Cost of goods manufactured		693000