Question

The information below has been taken from the cost records of Tink Co. for the past year: Direct materials used in production $326 Direct labor 225 OH allocated at 60% of DL$ ? Actual OH 145 Cost of goods available for sale 826 Sales revenue 900 Selling & administrative expenses 30 Inventories: Beginning Ending Work in process 80 30 Finished goods ? 110 SHOW ALL COMPUTATIONS: a) Prepare a statement of cost of goods manufactured & sold for T Co. (use normal costing) b) Prepare the closing entry for OH using COGS c) Prepare the Income Statement.

Answer 1

Answer:

Part a

i. Statement of cost of goods manufactured

Beginning Work In Process                                       $80

Add Manufacturing Cost ;

Direct Materials                                           $326

Direct Labor                                                 $225

Applied Overheads ($225 x 60%)               $135   $686

Less Ending Work in Process                                  ($30)        

Cost of Goods Manufactured                                  $736

ii. Statement of Cost of Goods Manufactured

Opening Finished Inventory                                     $90 (calculated)

Add Cost of Goods Manufactured                          $736

Goods Available for sale                                         $826

Less Ending Inventory                                             ($110)

Cost of Goods Sold                                                  $716

Add under -applied overheads                                 $10

Adjusted Cost of Goods Sold                                 $726

Part b

Debit : Cost of Goods Sold $10

Credit : Overheads $10

Part c

Tink Co.

Income Statement for the year

Sales Revenue                                      $900

Less Cost of Sales                                ($726)

Gross Profit                                             $174

Less Expenses

Selling & administrative expenses       ($30)

Net Income (Loss)                                   $144

Explanation:

At the end of the period compare amount of actual overheads to applied overheads

Since, Actual overheads > Applied overheads, overheads have been under-applied

Under-applied overheads = $145 - $135 = $10

The amount of under-applied overheads is added to cost of goods sold.

Note : The missing figure of Beginning Finished Inventory has been determined using missing figure approach to be $90