Question

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: Raw materials Work in procOS Finished Goods Beginning Ending Balance Balance $ 14,200 $22,200 $ 27,200 $ 9,200 $ 62,200 $77,200 01:42:53 • 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 33,200 machine hours and incur $245,680 in manufacturing overhead cost. The following transactions were recorded for the year • Raw materials were purchased, $315,200. • Raw materials were requisitioned for use in production, $307,200 ($280,800 direct and $26.400 indirect). • The following employee costs were incurred direct labor. $377,200, indirect labor. $96,200, and administrative salaries, $172,200. . Selling costs, $147,200. • Factory utility costs, $10,200 • Depreciation for the year was $139,000 of which $120.400 is related to factory operations and $18,600 is related to selling. general, and administrative activities • Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,040 machine-hours. • Sales for the year totaled $1.261,000. 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 Complete this question by entering your answers in the table below.

Answer 1

(a) -- Prepare a schedule of cost of goods manufactured.

Answer -

Working Note - (1) -

Predetermined overhead rate -

= Estimated total manufacturing overhead / Estimated total machine-hours

= $245680 / 33200

= $7.4 per machine hour.

.

Schedule of cost of goods manufactured

Particulars	Explanation	Amount ($)	Amount ($)
Direct materials:			-
Raw materials inventory, beginning	Given in question	14200	-
Add: purchases of raw materials	Given in question	315200	-
Total raw materials available	$14200 + $315200	329400	-
Less: raw materials inventory, ending	Given in question	22200	-
Raw materials used in production	$329400 - $22200	307200	-
Less: indirect materials	Given in question	26400	-
Direct materials	$307200 - $26400	-	280800
Direct labor	Given in question	-	377200
Manufacturing overhead applied	34040 machine hour * $7.4	-	251896
Total manufacturing costs	$280800 + $377200 + $251896	-	909896
Add: Beginning work in process inventory	Given in question	-	27200
Subtotal	$909896 + $27200	-	937096
Less: Ending work in process inventory	Given in question	-	9200
Cost of goods manufactured	$937096 - $9200	-	927896

.

(b) -- Was the overhead underapplied or overapplied? By how much?

Answer -

Particulars	Explanation	Amount ($)
Actual manufacturing overhead cost incurred:	-	-
Indirect materials	Given in question	26400
Indirect labor	Given in question	96200
Factory utilities	Given in question	10200
Factory depreciation	Given in question	120400
Manufacturing overhead cost incurred	$26400 + $96200 + $10200 + $120400	253200
Manufacturing overhead applied	34040 machine hour * $7.4	251896
Under-applied overhead	$253200 - $251896	1304

.

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

Answer -

Working Note - (1) -

Particulars	Explanation	Amount ($)
Beginning finished goods inventory	Given in question	62200
Cost of goods manufactured	Calculated in Part - (a)	927896
Goods available for sale	$62200 + $927896	990096
Ending finished goods inventory	Given in question	77200
Unadjusted cost of goods sold	$990096 - $77200	912896
Add: Underapplied overhead	Calculated in Part - (b)	1304
Adjusted cost of goods sold	$912896 + $1304	914200

.

Income Statement

Particulars	Explanation	Amount ($)	Amount ($)
Sales	Given in question	-	1261000
Cost of goods sold (adjusted)	Refer Working Note - (1)	-	914200
Gross margin	$1261000 - $914200	-	346800
Less: selling and administrative expenses:	-	-	-
Administrative salaries	Given in question	172200	-
Selling costs	Given in question	147200	-
Depreciation	Given in question	18600	338000
Net operating income	$346800 - $338000	-	8800