Managerial Acc, Handout (Part 2) with Solutions

Baba Company is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year: Raw materials ....................... Work in process ................... Finished goods ..................... Beginning Balance $22,000 $52,000 $121,000 Ending Balance $25,000 $34,000 $136,000 The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 40,000 machine-hours and incur $200,000 in manufacturing overhead cost. The following transactions were recorded for the year:  Raw materials were purchased, $412,000.  Raw materials were requisitioned for use in production, $409,000 $(362,000 direct and $47,000 indirect).  The following employee costs were incurred: direct labor, $324,000; indirect labor, $57,000; and administrative salaries, $129,000.  Selling costs, $135,000.  Factory utility costs, $22,000.  Depreciation for the year was $102,000 of which $94,000 is related to factory operations and $8,000 is related to selling, general, and administrative activities.  Manufacturing overhead was applied to jobs. The actual level of activity for the year was 44,000 machine-hours.  Sales for the year totaled $1,198,000. Required: a. Prepare a schedule of cost of goods manufactured in good form. b. Was the overhead underapplied or overapplied? By how much? c. Prepare an income statement for the year in good form. The company closes any underapplied or overapplied overhead to Cost of Goods Sold. Ans: a. Schedule of cost of goods manufactured Estimated total manufacturing overhead (a) ....................... Estimated total machine-hours (b) ...................................... Predetermined overhead rate (a) ÷ (b)................................. $200,000 40,000 $5.00 Actual total machine-hours (a) ............................................. Predetermined overhead rate (b) ......................................... Overhead applied (a) × (b) .................................................... 44,000 $5.00 $220,000 Direct materials: Raw materials inventory, beginning ................................. Add: purchases of raw materials...................................... Total raw materials available ............................................ Deduct: raw materials inventory, ending ......................... Raw materials used in production .................................... Less: indirect materials ..................................................... Direct materials ..................................................................... Direct labor ............................................................................ Manufacturing overhead applied ......................................... Total manufacturing costs.................................................... Add: Beginning work in process inventory ........................ $ 22,000 412,000 434,000 25,000 409,000 47,000 Deduct: Ending work in process inventory......................... Cost of goods manufactured................................................ b. Overhead underapplied or overapplied Actual manufacturing overhead cost incurred: Indirect materials ............................................................... Indirect labor ...................................................................... Factory utilities .................................................................. Factory depreciation .......................................................... Manufacturing overhead cost incurred ............................... Manufacturing overhead applied ......................................... Overhead is neither underapplied nor overapplied ............ $ 47,000 57,000 22,000 94,000 220,000 220,000 $0 $362,000 324,000 220,000 906,000 52,000 958,000 34,000 $924,000 c. Income Statement Beginning finished goods inventory ......................... Cost of goods manufactured...................................... Goods available for sale ............................................. Ending finished goods inventory ............................... Unadjusted cost of goods sold .................................. Deduct: underapplied or overapplied overhead ....... Adjusted cost of goods sold ...................................... Sales ............................................................................. Cost of goods sold (adjusted) .................................... Gross margin ............................................................... Less selling and administrative expenses: Administrative salaries ............................................ Selling costs ............................................................. Depreciation................................................................. Net operating income .................................................. $ 121,000 924,000 1,045,000 136,000 909,000 0 $ 909,000 $1,198,000 909,000 289,000 $129,000 135,000 8,000 272,000 $ 17,000 Bledsoe Corporation has provided the following data for the month of November: Inventories: Raw materials .......... Work in process ...... Finished goods ........ Beginning $25,000 $17,000 $48,000 Ending $21,000 $10,000 $56,000 Additional information: Raw materials purchases ........................................... Direct labor cost .......................................................... Manufacturing overhead cost incurred ..................... Indirect materials included in manufacturing overhead cost incurred ........................................... Manufacturing overhead cost applied to Work in Process .................................................................... $72,000 $92,000 $42,000 $4,000 $41,000 Required: Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold in good form. Ans: Cost of Goods Manufactured Direct materials: Beginning materials inventory ........................................... Add: Purchases of raw materials ...................................... Raw materials available for use ......................................... Deduct: Ending raw materials inventory........................... Raw materials used in production ..................................... Less indirect materials included in manufacturing overhead incurred ........................................................... Direct labor ............................................................................. Manufacturing overhead applied to Work in Process ......... Total manufacturing costs..................................................... Add: Beginning work in process inventory ......................... $25,000 72,000 97,000 21,000 76,000 4,000 Deduct: Ending work in process inventory.......................... Cost of goods manufactured................................................. Cost of Goods Sold Beginning finished goods inventory .................................... Add: Cost of goods manufactured ....................................... Goods available for sale ........................................................ Deduct: Ending finished goods inventory ........................... Unadjusted cost of goods sold ............................................. Add: Underapplied overhead ................................................ Adjusted cost of goods sold ................................................. $ 48,000 212,000 260,000 56,000 204,000 1,000 $205,000 $ 72,000 92,000 41,000 205,000 17,000 222,000 10,000 $212,000