Problem 3 Quality Souvenirs Corporation produces and distributes products that a
ID: 2599942 • Letter: P
Question
Problem 3
Quality Souvenirs Corporation produces and distributes products that are labeled and sold by sporting goods companies as souvenirs for their local sports teams. QSC, as they are called, needs to prepare its December 20x1, year-end financial statements. The initial draft was prepared by the company’s President. Below is a copy of that Income Statement:
QSC Corporation
Income Statement
December 31, 20x1
Sales
$950,000
Less:
Raw materials balance @ January 1, 20x1
$25,000
Wages – product assembly labor
150,000
Product painting and finishing wages
120,000
Advertising expense
90,000
Selling and administrative expenses
75,000
Rent on factory facilities
60,000
Rent on the corporate office complex
18,500
Finished Goods Inventory @ January 1, 20x1
30,000
Depreciation on sales equipment
45,000
Depreciation on production equipment
30,000
Accrued liabilities
125,000
Plant security wages
10,000
Purchases of direct material during the period
225,000
Production supervisor’s salary
18,000
Factory utilities
12,000
Factory cafeteria wages
21,000
Work-in Process Inventory @ January 1, 20x1
116,000
Factory insurance
8,000
1,078,500
Net Loss
($128,000)
With your advanced knowledge of accounting and reporting, you hired to review the income statement before it’s filed. In your review, you realize that the Income Statement is not quite right.
Required
Using the additional information provided below:
Prepare a schedule of cost of goods manufactured for the year-ending December 31, 20x1.
Prepare a corrected income statement for the year-ending December 31, 20x1:
Some additional information:
Fiscal year-ending December 31, 20x1
Raw Materials Inventory
$22,000
WIP Inventory
14,000
Finished Goods Inventory
40,000
By the way, according to QSC’s President, the company’s manufacturing overhead cost should be applied to production at a rate of 55% of Direct Labor cost.
QSC Corporation
Income Statement
December 31, 20x1
Sales
$950,000
Less:
Raw materials balance @ January 1, 20x1
$25,000
Wages – product assembly labor
150,000
Product painting and finishing wages
120,000
Advertising expense
90,000
Selling and administrative expenses
75,000
Rent on factory facilities
60,000
Rent on the corporate office complex
18,500
Finished Goods Inventory @ January 1, 20x1
30,000
Depreciation on sales equipment
45,000
Depreciation on production equipment
30,000
Accrued liabilities
125,000
Plant security wages
10,000
Purchases of direct material during the period
225,000
Production supervisor’s salary
18,000
Factory utilities
12,000
Factory cafeteria wages
21,000
Work-in Process Inventory @ January 1, 20x1
116,000
Factory insurance
8,000
1,078,500
Net Loss
($128,000)
Explanation / Answer
Solution:
Part 1 --- Schedule of Cost of Goods Manufactured during the year
Schedule of Cost of Goods manufactured for the Year Ending December 31, 20X1
$
Raw Material beginning inventory, Jan 1, 20X1
$25,000
Add: Materials purchased during the period
$225,000
Less: Ending Raw Material, Dec 31, 20X1
($22,000)
Cost of Raw Material Consumed during the year
$228,000
Add: Direct Labor (Assembly labor $150,000 + painting and finishing wages $120,00)
$270,000
Add: Factory Overhead Applied (Direct Labor Cost $270,000 * 55%)
$148,500
Total Manufacturing Cost
$646,500
Add: Beginning work in process, Jan 1, 20X1
$116,000
Less: Ending Work in process, Dec 31, 20X1
-$14,000
Cost of Goods Manufactured during the period
$748,500
Part 2 – Income Statement
Income Statement for the Year Ending December 31, 20X1
Sales
$950,000
Less: Cost of Goods Sold
Cost of Goods manufactured (Refer Part 1)
$748,500
Add: Finished Goods Inventory, jan 1, 20X1
$30,000
Cost of Goods Available for Sale
$778,500
Less: Finished Goods Inventory, Dec 31, 20X1
($40,000)
Unadjusted Cost of Goods Sold
$738,500
Add: Under Applied Manufacturing Overhead (Refer Note 1)
$10,500
Adjusted Cost of goods sold
$749,000
Gross Profit
$201,000
Selling and administrative expenses:
Advertising Expenses
$90,000
Selling and administrative expenses
$75,000
Rent on Corporate office complex
$18,500
Depreciation on Sales Equipment
$45,000
Total selling and administrative expenses
$228,500
Net Income or (loss)
($27,500)
Note 1 --- Calculation of Over or Under Applied Manufacturing Overhead
Calculation of Total Actual Factory or manufacturing overhead Incurred during the period
$
Rent on factory facilities
$60,000
Depreciation on production equipment
$30,000
Plant security wages
$10,000
Production Supervisors salary
$18,000
Factory Utilities
$12,000
Factory cafeteria wages
$21,000
Factory insurance
$8,000
Actual Factory Overhead Incurred
$159,000
Applied Manufacturing Overhead (refer Part 1) = $148,500
Here, applied overheads are less than actual incurred overhead, it means the overheads are under applied.
Under Applied Overhead = $159,000 – 148,500 = $10,500
Under applied overhead is charged to cost of goods sold. It means under applied overhead is added to Unadjusted Cost of Goods Sold to find out adjusted cost of goods sold.
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question. Please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Schedule of Cost of Goods manufactured for the Year Ending December 31, 20X1
$
Raw Material beginning inventory, Jan 1, 20X1
$25,000
Add: Materials purchased during the period
$225,000
Less: Ending Raw Material, Dec 31, 20X1
($22,000)
Cost of Raw Material Consumed during the year
$228,000
Add: Direct Labor (Assembly labor $150,000 + painting and finishing wages $120,00)
$270,000
Add: Factory Overhead Applied (Direct Labor Cost $270,000 * 55%)
$148,500
Total Manufacturing Cost
$646,500
Add: Beginning work in process, Jan 1, 20X1
$116,000
Less: Ending Work in process, Dec 31, 20X1
-$14,000
Cost of Goods Manufactured during the period
$748,500
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.