The following data from the just completed year are taken from the accounting records of Mason Company: Sales $ 657,000
Direct labor cost $ 84,000
Raw material purchases $ 134,000
Selling expenses $ 101,000
Administrative expenses $ 49,000
Manufacturing overhead applied to work in process $ 203,000
Actual manufacturing overhead costs $ 225,000
Inventories
Beginning of Year End of Year
Raw materials $ 8,500 $ 10,900
Work in process $ 5,500 $ 20,400
Finished goods $ 79,000 $ 25,900
Required:
1. Prepare a schedule of cost of goods manufactured. Assume all raw materials used in production were direct materials.
2. Prepare a schedule of cost of goods sold. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold.
3. Prepare an income statement.

Answer and Explanation:

1. The preparation of the schedule of cost of goods manufactured is presented below:

                                            Mason Company

                                  Cost of Goods manufactured Statement

Beginning work-in-process inventory                                 $5,500

Manufacturing costs:

Direct materials:                                                  

Beginning inventory                                   $8,500

Purchases                                                   $134,000

Materials available                                      $142,500

Less:  Ending inventory                             -$10,900

Direct materials used                                                             $131,600

Direct labor cost                                                                     $84,000

Other manufacturing costs                                                    $203,000

Total manufacturing costs:                                                     $418,600

Total costs of work-in-process                                               $424,100              Less:  Ending work-in-process                                              -$20,400

Cost of goods manufactured                                                  $403,700

2. The preparation of the schedule of cost of goods sold  is presented below:

                                            Mason Company

                                  Cost of Goods Sold Statement

Cost of goods manufactured                                                   $403,700

Add: opening stock of finished goods                                    $79,000

Less: Closing stock of finished goods                                    -$25,900

Unadjusted cost of goods sold                                                $456,800

Add: Under applied overhead                                                  $22,000

Cost of goods sold                                                                    $478,800

3. The preparation of the income statement is presented below:

                                                 Mason Company

                                               Income statement

Sales                                                                                            $657,000

Less: Cost of goods sold                                                            -$478,800

Gross profit                                                                                   $178,200

Less: expenses

Selling expenses $101,000

Administrative expenses $49,000                                             -$150,000

Net income                                                                                    $28,200