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NAME: Normal Costing Review Problem Yuletide Company is a manufacturing firm tha

ID: 2799671 • Letter: N

Question

NAME: Normal Costing Review Problem Yuletide Company is a manufacturing firm that uses normal costing. The company's inventory balances were as follows at the beginning and end of the calendar year 2016. Beginning Balance Direct Materials $14,000 Work in Process $27,000 Finished Goods$62,000 Ending Balance $22,000 $9,000 $77,000 The company applies overhead to jobs using a predetermined overhead rate based on machine hours. At the beginning of the year, the company estimated it would work 33,000 machine hours and incur $231,000 in overhead cost. The following information may be useful to you as you complete your tasks. A. Direct Materials purchased during 2016 cost a total of $315,000 B. The following employee costs were incurred: i. Direct Labor $377,000 I i Administrative Salaries 172,000 ii. Sales Salaries $147,000 C. Factory Utility Costs: $10,000 D. Depreciation for the year was $127,000 of which $120,000 is related to factory operations and $7,000 is related to selling and administrative activities. E. Machine Hours: Actual machine hours incurred in 2016 were 35,000 G. Ending Accounts Receivable Balance: $84, 000 H. Ending Prepaid Expenses: $25,000 I. Administrative Expense: $74,000 . Finished Goods Warehousing Expense was $38,000 L. M. Overhead: Assume that any under or over-applied overhead is closed 100% to Cost of Good Sold. Sales for year totaled $1,363,000 Factory Maintenance Costs: $122,000 Tasks for our homework: A. Prepare a Schedule of Cost of Goods Manufactured in Good Form (Remember that means a proper B. Prepare an Income Statement in Good Form as well. heading too!)

Explanation / Answer

A. Statement showing cost of goods manufactured:

Direct materials:

Beginning raw materials

          14,000.00

Add: Purchase of raw materials

       315,000.00

Less: ending raw materials

       (22,000.00)

Direct materials

       307,000.00

Direct labor

       377,000.00

Manufacturing overhead (note)

       245,000.00

Add: Beginning work-in process inventory

          27,000.00

Less: ending work-in process inventory

          (9,000.00)

Cost of goods manufactured

       947,000.00

Note: Computation of manufacturing overhead applied:
Predetermined rate = overhead cost / total machine hours
= 231,000 / 33,000 = $7 per machine hour.
Manufacturing overhead applies = Actual machine hours * rate per hour
= 35,000* $7 = $245,000.

B. Income statement:

Sales:

    1,363,000.00

Less: Adjusted cost of goods sold (note-2)

     (939,000.00)

Gross margin

       424,000.00

Less: selling and administrative expenses

Administrative salaries

       172,000.00

Depreciation

            7,000.00

Sales salaries

       147,000.00

Administrative expenses

          74,000.00

Finished goods warehouse expenses

          38,000.00

     (438,000.00)

Net income / (loss)

       (14,000.00)

Note-2: Computation of adjusted Cost of goods sold:

Beginning finished goods inventory

          62,000.00

Cost of goods manufactured

       947,000.00

Less: Ending finished goods inventory

       (77,000.00)

Unadjusted cost of goods sold

       932,000.00

Add: Under applied

Overhead under or over applied

Actual manufacturing overhead costs incurred

Factory utility

          10,000.00

Factory depreciation

       120,000.00

Factory maintenance

       122,000.00

Manufacturing cost incurred

       252,000.00

Manufacturing cost applied

       245,000.00

Under applied

            7,000.00

            7,000.00

Adjusted cost of goods sold

       939,000.00

Direct materials:

Beginning raw materials

          14,000.00

Add: Purchase of raw materials

       315,000.00

Less: ending raw materials

       (22,000.00)

Direct materials

       307,000.00

Direct labor

       377,000.00

Manufacturing overhead (note)

       245,000.00

Add: Beginning work-in process inventory

          27,000.00

Less: ending work-in process inventory

          (9,000.00)

Cost of goods manufactured

       947,000.00