Superior Company provided the following data for the year ended December 31 (all

Question

Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials):

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

The total manufacturing costs for the year were $690,000; the cost of goods available for sale totaled $725,000; the unadjusted cost of goods sold totaled $662,000; and the net operating income was $31,000. 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.)

Selling expenses $ 211,000 Purchases of raw materials $ 267,000 Direct labor ? Administrative expenses $ 156,000 Manufacturing overhead applied to work in process $ 374,000 Actual manufacturing overhead cost $ 356,000

Explanation / Answer

Superior Company Schedule of Cost of goods Manufactured Direct Materials Raw Material Inventory beginning $     57,000 Add: Purchases of raw Material $ 2,67,000 Total Raw Material available $ 3,24,000 Deduct: Raw Material Inventory ending $     38,000 Raw Material used in production $   2,86,000 Direct Labour $       30,000 Manufacturing overheads applied to work in process inventory $   3,74,000 Total manufacturing cost $   6,90,000 Add: Beginning work in process inventory $       25,000 $   7,15,000 Deduct: Ending work in process inventory $       23,000 Cost of goods manufactured $   6,92,000 Workings: 1 Direct Labour =Total manufacturing cost - Raw Material used in production - Manufacturing overheads applied to work in process inventory Direct Labour = $6,90,000-$2,86,000-$3,74,000= $30,000 2 Cost of goods manufactured = Cost of goods available for sale - Beginning finished goods inventory Cost of goods manufactured = $7,25,000 - $33,000 = $6,92,000 3 Beginning work in process inventory = Cost of goods manufactured + Ending work in process inventory - Total Manufacturing Cost Beginning work in process inventory = $6,92,000 + $23,000 - $6,90,000 = $25,000 Superior Company Schedule of Cost of Goods Sold Finished Goods Inventory Beginning $     33,000 Cost of goods manufactured $ 6,92,000 Cost of goods available for sale $ 7,25,000 Deduct: Finished Goods Inventory Ending $     63,000 Unadjusted cost of goods sold $ 6,62,000 Add: Underapplied Overheads $     32,000 Adjusted cost of goods sold $ 6,94,000 Workings: 1 Adjusted cost of goods sold = Cost of goods available for sale - Net operating Income Adjusted cost of goods sold = $7,25,000 - $31,000 = $6,94,000 2 Underapplied Overheads = Adjusted cost of goods sold - Unadjusted Cost of goods sold Underapplied Overheads = $6,94,000 - $6,62,000 = $32,000 Superior Company Income Statement Sales $ 10,92,000 Deduct: Cost of Goods Sold $   6,94,000 Gross Margin $   3,98,000 Deduct: Selling and Administrative Expenses: Selling Expense $ 2,11,000 Administrative Expense $ 1,56,000 $   3,67,000 Net Operating Income $       31,000 Workings: 1 Gross Margin = Net Operating Income +Selling and Administrative Expenses Gross Margin = $31,000 + $3,67,000 = $3,98,000 2 Sales = Cost of Goods Sold + Gross Margin Sales = $6,94,000 + $3,98,000 = $10,92,000

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