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 $ 140,000
Purchases of raw materials $ 290,000
Direct labor ?
Administrative expenses $ 100,000
Manufacturing overhead applied to work in process $ 285,000
Total actual manufacturing overhead costs $ 270,000
Inventory balances at the beginning and end of the year were as follows:
Beginning of Year End of Year
Raw materials $ 40,000 $ 10,000
Work in process ? $ 35,000
Finished goods $ 50,000 ?
The total manufacturing costs for the year were $683,000; the cost of goods available for sale totaled $740,000; the unadjusted cost of goods sold totaled $660,000; and the net operating income was $30,000. The company’s overapplied or underapplied overhead is closed entirely to Cost of Goods Sold.
Required:
a. Prepare a schedule of cost of goods manufactured.
b. Prepare a schedule of cost of goods sold.
c. Prepare an income statement for the year.

Answer 1

Answer and Explanation:

The Preparation of cost of goods manufactured is shown below:-

Statement of Cost of Good Manufactured

Particulars                                             Amount

Direct Material    

Beginning Inventory a         $40,000  

Purchases b                          $290,000  

Direct material available     $330,000

(c = a + b)  

Ending direct material

inventory d                             $10,000  

Direct Material used                           $320,000  

(e = c - d)

Direct Labor                                        $398,000  

                           ($683,000 - $285,000 - $320,000)

Factory Overhead                              $285,000  

Total Manufacturing Cost                   $683,000  

Add: Beginning WIP Inventory           $42,000  

                         ($690,000 + $35,000 - $683,000)

Less: Ending WIP Inventory                $35,000  

Cost of goods manufactured             $690,000

b and c The Preparation of schedule of cost of goods sold and income statement for the year is prepared below:-

Schedule of cost of goods sold

Income statement for the year

Particulars                                             Amount

Sales                                                     $915,000

                                           ($270,000 + $645,000)

Cost of goods sold    

Beginning inventory of

finished product                      $50,000  

Cost of goods manufactured $690,000  

Cost of goods available

for sales                                    $740,000  

Less:Ending finished good

inventory                                  $80,000

                       ($740,000 - $660,000)

Cost of goods sold

(Unadjusted)                             $660,000  

Over-applied Overhead           $15,000  

                         ($285,000 - $270,000)

Cost of goods sold (Adjusted)                   $645,000

                                      ($660,000 - $15,000)

Gross profit                                                   $270,000

                                 ($30,000 + $100,000 + $140,000)

Less: Selling & Administrative Expenses    

Selling Expenses                   $140,000  

Administrative expenses       $100,000    $240,000  

Operating income                                      $30,000