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	$	217,000
Purchases of raw materials	$	260,000
Direct labor		?
Administrative expenses	$	158,000
Manufacturing overhead applied to work in process	$	370,000
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	$	57,000		$	36,000
Work in process		?		$	26,000
Finished goods	$	30,000			?

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 $667,000; and the net operating income was $36,000. 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

1	SUPERIOR COMPANY
	SCHEDULE OF COST OF GOODS MANUFACTURED
		$	$
	Direct materials:
	Beginning Raw materials inventory	57,000.00
	Add: Raw materials purchases	260,000.00
	Raw materials available for use	317,000.00
	Less: Ending Raw materials inventory	(36,000.00)
	Raw materials used in production		281,000.00
	Direct labor (685,000-281,000-370,000)		34,000.00
	Manufacturing Overhead applied to work in process		370,000.00
	Total manufacturing costs (Given)		685,000.00
	Add: Beginning Work in process inventory		46,000.00
	Total cost of work in process		731,000.00
	Less: Ending Work in process inventory		(26,000.00)
	Cost of goods manufactured		705,000.00
2	SUPERIOR COMPANY
	Schedule of cost of goods sold
		$
	Beginning Finished Goods	30,000.00
	Add: Cost of goods manufactured	705,000.00
	Cost of goods available for sale	735,000.00
	Less: Ending Finished Goods	(68,000.00)
	Unadjusted Cost of goods sold	667,000.00
	Less: Over applied overhead ($370,000 ‒$359,000)	(11,000.00)
	Adjusted Cost of goods sold	656,000.00

3
SUPERIOR COMPANY
Income Statement
	$	$
Sales		1,067,000.00
Less: Cost of goods sold		656,000.00
Gross margin		411,000.00
Selling and administrative expenses:
Selling Expenses	217,000.00
Administrative Expense	158,000.00	375,000.00
Net operating income (Given)		36,000.00