Question

TB Problem Qu. 3-252 Baab Corporation is a ...

Baab Corporation 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:

	Beginning Balance		Ending Balance
Raw materials	$	14,950	$	22,950
Work in process	$	27,950	$	9,950
Finished Goods	$	62,950	$	77,950

• 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 33,950 machine-hours and incur $302,155 in manufacturing overhead cost. The following transactions were recorded for the year:
• Raw materials were purchased, $315,950.
• Raw materials were requisitioned for use in production, $307,950 ($280,050 direct and $27,900 indirect).
• The following employee costs were incurred: direct labor, $377,950; indirect labor, $96,950; and administrative salaries, $172,950.
• Selling costs, $147,950.
• Factory utility costs, $10,950.
• Depreciation for the year was $184,000 of which $173,000 is related to factory operations and $11,000 is related to selling, general, and administrative activities.
• Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,190 machine-hours.
• Sales for the year totaled $1,325,000.

Required:

a. Prepare a schedule of cost of goods manufactured.

b. Was the overhead underapplied or overapplied? By how much?

c. Prepare an income statement for the year. The company closes any underapplied or overapplied overhead to Cost of Goods Sold.

Answer 1

Part A

Baab Company Schedule of Cost of Goods Manufactured
Direct materials
Raw materials inventory, beginning	14950
Add: Purchases of raw materials	315950
Total raw materials available	330900
Deduct: Raw materials inventory, ending	22950
Raw materials used in production	307950
Deduct: Indirect materials	27900
Direct materials	280050
Direct labor	377950
Manufacturing overhead applied (302155/33950*34190)	304291
Total manufacturing costs	962291
Add: Beginning work in process inventory	27950
	990241
Deduct: Ending work in process inventory	9950
Cost of goods manufactured	980291

Part B

underapplied   overhead

$4509

Actual overhead = 27900+96950+10950+173000 = 308800

underapplied   overhead = 308800-304291

Part C

Baab Company Income Statement
Sales		1325000
Cost of goods sold		969800
Gross margin		355200
Selling and administrative expenses:
Administrative salaries	172950
Selling costs	147950
Depreciation	11000	331900
Net operating income		$23300

Cost of goods sold = 62950+980291-77950+4509 = 969800