Question

Problem 3-13 (Algo) Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement [LO3-3] Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials): Selling expenses Purchases of raw materials Direct labor $ 219,000 $ 269,000 ? Administrative expenses $ 157,000 $364,000 Manufacturing overhead applied to work in process Actual manufacturing overhead cost $ 353,000 Inventory balances at the beginning and end of the year were as follows: Beginning $ 58,000 Ending $ 33,000 Raw materials Work in process 2 $ 29,000 Finished goods $ 37,000 ? The total manufacturing costs added to production for the year were $680,000; the cost of goods available for sale totaled $725,000; the unadjusted cost of goods sold totaled $663,000; and the net operating income was $32,000. The company's underapplied or overapplied overhead is closed to Cost of Goods Sold. Required: Prepare schedules of cost of goods manufactured and cost of goods sold and an income statement. (Hint: Prepare the income statement and schedule of cost of goods sold first followed by the schedule of cost of goods manufactured.) Complete this question by entering your answers in the tabs below. Income COGS Statement Schedule COGM Schedule Prepare an income statement for the year. Superior Company Income Statement Sales Cost of goods sold Gross margin 0 Selling and administrative expenses: Selling expenses Administrative expenses 0 Net operating income < Income Statement COGS Schedule >

Answer 1

To complete the income statement for Superior Company, the adjusted cost of goods sold is calculated by adding the underapplied overhead to the unadjusted COGS, which totals $674,000. The gross margin is derived by subtracting adjusted COGS from sales. The net operating income is the difference between gross margin and total selling and administrative expenses.

Step-by-step explanation:

Superior Company Income Statement for 2023

Sales: To be provided (Net Sales Revenue needed to compute the income statement.)

Cost of Goods Sold (COGS): Begin with the unadjusted cost of goods sold (which is $663,000). Add or deduct the overapplied or underapplied overhead to get the adjusted COGS. Since we only have the applied manufacturing overhead ($364,000) and the actual manufacturing overhead costs ($353,000), we calculate the difference which is $11,000 underapplied overhead (since applied is greater than actual). This amount is then added to the unadjusted COGS.

Adjusted COGS = Unadjusted COGS + Underapplied overhead = $663,000 + $11,000 = $674,000

Gross Margin: Subtract the adjusted COGS from the Sales (Net Sales Revenue - Adjusted COGS).

Selling and Administrative Expenses:

• Selling Expenses: $219,000
• Administrative Expenses: $157,000

Total Selling and Administrative Expenses = Selling Expenses + Administrative Expenses = $219,000 + $157,000 = $376,000

Net Operating Income: Subtract Total Selling and Administrative Expenses from Gross Margin.

If the Gross Margin is not greater than the Total Selling and Administrative Expenses, the result will be a Net Operating Loss.

Answer 2

To prepare the income statement for Superior Company, we must adjust the Cost of Goods Sold for overapplied overhead. After adjustments, we find the sales revenue and complete the income statement, which results in a Net Operating Income of $32,000.

Step-by-step explanation:

Income Statement Preparation

To prepare the income statement for Superior Company, we start by calculating the Cost of Goods Sold (COGS). We know the unadjusted COGS is $663,000, but this will need to be adjusted for any underapplied or overapplied manufacturing overhead. Since the actual manufacturing overhead cost ($353,000) is less than the manufacturing overhead applied to work in process ($364,000), we have an overapplied overhead of $11,000. This amount is subtracted from the unadjusted COGS to get the adjusted COGS.

Adjusted COGS is then calculated as follows:

• Unadjusted COGS: $663,000
• Less: Overapplied overhead: $11,000
• Adjusted COGS: $652,000

With the adjusted COGS, we can continue with preparing the income statement:

• Sales: Unknown
• Cost of Goods Sold: $652,000
• Gross Margin: Sales - $652,000
• Selling expenses: $219,000
• Administrative expenses: $157,000
• Total Operating Expenses: $376,000
• Net Operating Income: $32,000

Since we know the net operating income, we can deduce sales by summing the adjusted COGS and total operating expenses and adding the net operating income.

• Sales = $652,000 + $376,000 + $32,000 = $1,060,000

Finally, the completed income statement is as follows:

• Sales: $1,060,000
• Cost of Goods Sold: $652,000
• Gross Margin: $408,000
• Selling and administrative expenses: $376,000
• Net Operating Income: $32,000