Question

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	$	269,000
Direct labor		?
Administrative expenses	$	156,000
Manufacturing overhead applied to work in process	$	368,000
Actual manufacturing overhead cost	$	350,000

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

	Beginning of Year			End of Year
Raw materials	$	58,000		$	37,000
Work in process		?		$	25,000
Finished goods	$	31,000			?

The total manufacturing costs for the year were $670,000; the cost of goods available for sale totaled $725,000; the unadjusted cost of goods sold totaled $666,000; and the net operating income was $32,000. 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

Cost of Goods Sold $31,000 $ 49,000 Refer working note-4 Finished goods inventory, Work in process inventory, Direct Materials Inventory, Beginning Purchases Cost of direct materials available for use Less: Direct materails closing inventory Cost of direct matetials used in production B (A+B) $58,000 $269,000 $327,000 $37,000 $290,000 Direct labour II $12,000 Refer working note-1 Factory overhead III $368,000 Total Manufacturing costs I+II+III $670,000 Less: Closing work in progress $25,000 Cost of goods manufactured Cost of finished goods availble for sale Less: closing finished goods inventory Unadjusted Cost of goods sold |Less: Overapplied overhead Adjusted Cost of goods sold $ 694,000 Refer working note-2 $725,000 $ 59,000 Refer working note-3 $ 666,000 $ (18,000)|350000-368000 $ 648,000

Income statement Amount Accounts tittle Sales revenue Less : Cost of goods sold Gross profit Amount $1,053,000 Refer working note -5 $ (648,000 $405,000 Less: Expenses Administration Selling costs $156,000 $217,000 Total expenses $373,000 Net Income $32,000

Working note-1 Total Manufacturing costs I+II+III Total Manufacturing costs I+II+III 290,000+368000+Direct labour Direct labour $ 670,000 Direct material + Direct labour + Overhead $ 670,000 $ 12,000 Working note-2 Cost of finished goods availble for sale = Beginning finished inventory + Cost of goods manufactured 725,000 = 31,000 + Cost of goods manufactured Cost of manufactured = 725,000-31000 $ 694,000 Working note-3 Cost of goods sold Cost of finished goods availble for sale - closing finished goods inventory Closing finished goods inventory Cost of finished goods availble for sale - Cost of goods sold = 725000 - 666,000 $ 59,000 Working note-4 Cost of goods manufactured = Beginning work in progress + Manufacturing costs - Ending work in progress 694,000 = Beginning work in progress + 670,000 - 25,000 Beginning work in progress = 694.000 - 670,000 + 25,000 $ 49,000 Working note-5 Net operating income – Sales - Cost of goods sold- Expenses 32000 = Sales -648000 - 373000 Sales $ 1,053,000