Work in process 36000 5 finished goods 180000 25 cost

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Work in process ............................. $ 36,000 5 % Finished goods .............................. 180,000 25 % Cost of goods sold ......................... 504,000 70 %
Total ................................................ $720,000 100 % The entry to record the allocation of the underapplied overhead would be: Work in Process (5% × $130,000) ..... 6,500 Finished Goods (25% × $130,000) .... 32,500 Cost of Goods Sold (70% × $130,000) ....................................... 91,000 Manufacturing Overhead ........... 130,000
Problem 3-12 (continued) 4. Comparing the two methods: Cost of goods sold if the underapplied over- head is closed to cost of goods sold ($1,400,000 + $130,000) ............................. $1,530,000 Cost of goods sold if the underapplied over- head is closed to Work in Process, Finished Goods, and Cost of Goods Sold ($1,400,000 + $91,000) ................................................... 1,491,000 Difference in cost of goods sold ...................... $ 39,000 Thus, net operating income will be $39,000 greater if the under- applied overhead is closed to Work in Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold.
Problem 3-13 (30 minutes) Schedule of cost of goods manufactured: Direct materials: Beginning raw materials inventory* ..... $ 40,000 Add: Purchases of raw materials* ........ 290,000 Total raw materials available ............... 330,000 Deduct: Ending raw materials inven- tory* .................................................. 10,000 Raw materials used in production ........ $320,00 0 Direct labor ............................................ 78,000 Manufacturing overhead applied to work in process* .................................. 285,000 Total manufacturing costs* ..................... 683,000 Add: Beginning work in process inven- tory ...................................................... 42,000 725,000 Deduct: Ending work in process inven- tory* .................................................... 35,000 Cost of goods manufactured .................. $690,00 0 Schedule of cost of goods sold: Beginning finished goods inventory* ...... $ 50,000 Add: Cost of goods manufactured .......... 690,000
Cost of goods available for sale* ............ 740,000 Deduct: Ending finished goods inven- tory ...................................................... 80,000 Unadjusted cost of goods sold* .............. 660,000 Deduct: Overapplied overhead ($270,000 ‒ $285,000) ........................ 15,000 Adjusted cost of goods sold ................... $645,00 0 Income statement: Sales ..................................................... $915,00 0 Cost of goods sold ($660,000 – $15,000) ............................................. 645,000 Gross margin ......................................... 270,000 Selling and administrative expenses: Selling expenses* ............................... $140,00 0 Administrative expense* ..................... 100,000 240,000 Net operating income* .......................... $ 30,000
* Given in the problem Problem 3-14 (60 minutes) 1. The predetermined overhead rate is computed as follows:
2. Before the underapplied or overapplied overhead can be computed, we must determine the amount of direct materials used in production for the year.
Problem 3-14 (continued) 3. Gitano Products Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory ......... $ 20,000 Add purchases of raw materials ............. 510,000 Total raw materials available .................. 530,000 Deduct Ending raw materials inventory.. 80,000 Raw materials used in production ............. $ 450,00 0 Direct labor ............................................... 90,000 Manufacturing overhead applied to work in process ............................................... 720,000 Total manufacturing costs ......................... 1,260,000 Add: Beginning work in process inventory 150,000 1,410,000 Deduct: Ending work in process inven- tory ........................................................ 70,000 Cost of goods manufactured ..................... $1,340,00 0 4. Unadjusted cost of goods sold: Beginning finished goods inventory ............ $ 260,000 Add: Cost of goods manufactured ............... 1,340,000

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