Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials): Selling expenses $ 140,000
Purchases of raw materials $ 290,000
Direct labor ?
Administrative expenses $ 100,000
Manufacturing overhead applied to work in process $ 285,000
Total actual manufacturing overhead costs $ 270,000
Inventory balances at the beginning and end of the year were as follows:
Beginning of Year End of Year
Raw materials $ 40,000 $ 10,000
Work in process ? $ 35,000
Finished goods $ 50,000 ?
The total manufacturing costs for the year were $683,000; the cost of goods available for sale totaled $740,000; the unadjusted cost of goods sold totaled $660,000; and the net operating income was $30,000. The company’s overapplied or underapplied overhead is closed entirely to Cost of Goods Sold.
Required:
a. Prepare a schedule of cost of goods manufactured.
b. Prepare a schedule of cost of goods sold.
c. Prepare an income statement for the year.

a. The schedule of cost of goods manufactured is $690,000

b. The schedule of cost of goods sold is $645,000

c. The income statement for the year is $30,000

a. Superior Company Schedule of cost of goods manufactured

For year ended December 31

Direct materials:  

Beginning inventory of raw materials$40,000

Raw material purchases$290,000

Raw materials available for use$330,000

($40,000+$290,000)

Less Ending inventory of raw materials($10,000)

Direct materials used  $320,000

($330,000-$10,000)

Direct labor  $78,000

Manufacturing overhead applied  $285,000

Total manufacturing costs  $683,000

($320,000+$78,000+$285,000)

Add beginning WIP  $42,000

Total cost of work in process  $725,000

($683,000-$42,000)

Less Ending WIP  ($35,000)

Cost of goods manufactured  $690,000

($725,000-$35,000)

b. Superior Company Schedule of cost of goods sold For year ended December 31

Beginning finished goods inventory$50,000

Add Cost of goods manufactured$690,000

Cost of goods available for sale$740,000

($50,000+$740,000)

Less Ending finished goods inventory($80,000)

Unadjusted Cost of goods sold$660,000

($740,000-$80,000)

Less Over applied overhead($15,000)

Adjusted cost of goods sold $645,000

($660,000-$15,000)

c. Superior Company Income Statement

For year ended December 31

Sales revenue$915,000

Less Cost of goods sold$645,000

Gross profit$270,000

($915,000-$645,000)

Less Selling Expenses($140,000)

Less Administrative Expenses($100,000)

Operating Income $30,000

($270,000-$140,000-$100,000)

Inconclusion The schedule of cost of goods manufactured is $690,000; The schedule of cost of goods sold is $645,000 and The income statement for the year is $30,000.

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Answer and Explanation:

The Preparation of cost of goods manufactured is shown below:-

Statement of Cost of Good Manufactured

Particulars                                             Amount

Direct Material    

Beginning Inventory a         $40,000  

Purchases b                          $290,000  

Direct material available     $330,000

(c = a + b)  

Ending direct material

inventory d                             $10,000  

Direct Material used                           $320,000  

(e = c - d)

Direct Labor                                        $398,000  

                           ($683,000 - $285,000 - $320,000)

Factory Overhead                              $285,000  

Total Manufacturing Cost                   $683,000  

Add: Beginning WIP Inventory           $42,000  

                         ($690,000 + $35,000 - $683,000)

Less: Ending WIP Inventory                $35,000  

Cost of goods manufactured             $690,000

b and c The Preparation of schedule of cost of goods sold and income statement for the year is prepared below:-

Schedule of cost of goods sold

Income statement for the year

Particulars                                             Amount

Sales                                                     $915,000

                                           ($270,000 + $645,000)

Cost of goods sold    

Beginning inventory of

finished product                      $50,000  

Cost of goods manufactured $690,000  

Cost of goods available

for sales                                    $740,000  

Less:Ending finished good

inventory                                  $80,000

                       ($740,000 - $660,000)

Cost of goods sold

(Unadjusted)                             $660,000  

Over-applied Overhead           $15,000  

                         ($285,000 - $270,000)

Cost of goods sold (Adjusted)                   $645,000

                                      ($660,000 - $15,000)

Gross profit                                                   $270,000

                                 ($30,000 + $100,000 + $140,000)

Less: Selling & Administrative Expenses    

Selling Expenses                   $140,000  

Administrative expenses       $100,000    $240,000  

Operating income                                      $30,000

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