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): Selling expenses $ 214,000 Purchases of raw materials $ 265,000 Direct labor ? Administrative expenses $ 156,000 Manufacturing overhead applied to work in process $ 371,000 Actual manufacturing overhead cost $ 359,000 Inventory balances at the beginning and end of the year were as follows: Beginning of Year End of Year Raw materials $ 60,000 $ 34,000 Work in process ? $ 26,000 Finished goods $ 30,000 ? The total manufacturing costs for the year were $690,000; the cost of goods available for sale totaled $735,000; the unadjusted cost of goods sold totaled $670,000; 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.)

Explanation / Answer

Schedule of Cost of Goods Manufactured

Direct materials;

Raw materials inventory, beginning

$60000

Add: Purchases of raw materials

$265000

Total raw materials available

$325000

Deduct: Raw materials inventory, ending

($34000)

Raw materials used in production

$291000

Direct labor ($690000 - $371000 - $291000)

$28000

Manufacturing overhead applied to work in process

Inventory

$371000

Total manufacturing costs

$690000

Add: Beginning work in process inventory ($705000 + $26000 - $690000)

$41000

Deduct: Ending work in process inventory

($26000)

Cost of goods manufactured

$705000

Schedule of Cost of Goods Sold

Finished goods inventory, beginning

$30000

Add: Cost of goods manufactured ($735000 - $30000)

$705000

Cost of goods available for sale

$735000

Deduct: Finished goods inventory, ending ($735000 – $670000)

($65000)

Unadjusted cost of goods sold

$670000

Less: Overapplied overhead ($371000 – $359000)

($12000)

Adjusted cost of goods sold

$658000

Income Statement

Sales ($402000 + $658000)

$1060000

Less: Cost of goods sold

($658000)

Gross margin ($370000 + $32000)

$402000

Less: Selling & Administrative Expenses;

Selling expenses

$214000

Administrative expenses

$156000

($370000)

Net operating income

$32000

Schedule of Cost of Goods Manufactured

Direct materials;

Raw materials inventory, beginning

$60000

Add: Purchases of raw materials

$265000

Total raw materials available

$325000

Deduct: Raw materials inventory, ending

($34000)

Raw materials used in production

$291000

Direct labor ($690000 - $371000 - $291000)

$28000

Manufacturing overhead applied to work in process

Inventory

$371000

Total manufacturing costs

$690000

Add: Beginning work in process inventory ($705000 + $26000 - $690000)

$41000

Deduct: Ending work in process inventory

($26000)

Cost of goods manufactured

$705000

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