Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials): Selling expenses $ 217,000 Purchases of raw materials $ 265,000 Direct labor ? Administrative expenses $ 155,000 Manufacturing overhead applied to work in process $ 371,000 Actual manufacturing overhead cost $ 352,000 Inventory balances at the beginning and end of the year were as follows: Beginning Ending Raw materials $ 50,000 $ 35,000 Work in process ? $ 28,000 Finished goods $ 32,000 ? 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 $666,000; 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.)
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials):
| Selling expenses | $ 217,000 |
|---|---|
| Purchases of raw materials | $ 265,000 |
| Direct labor | ? |
| Administrative expenses | $ 155,000 |
| Manufacturing |
$ 371,000 |
| Actual manufacturing overhead cost | $ 352,000 |
Inventory balances at the beginning and end of the year were as follows:
| Beginning | Ending | |
|---|---|---|
| Raw materials | $ 50,000 | $ 35,000 |
| Work in process | ? | $ 28,000 |
| Finished goods | $ 32,000 | ? |
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 $666,000; 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.)
Cost of goods manufactured -
Cost of Goods Manufactured is the total cost incurred for manufactured goods of the company. Later this cost is transferred to the finished goods ledger to proceed to the calculated cost of goods sold.
The cost of goods manufactured is calculated as follows -
Total Manufacturing Cost = Direct Material + Direct Labour + Factory Overheads
Cost of Goods Manufactured = Total Manufacturing Cost + Work in Process, Beginning - Work in Process, Ending
Cost of goods sold -
Cost of Goods Sold is the cost incurred to sell the goods to the customer.
The cost of goods Sold is calculated as follows = Finished Goods Beginning + Cost of goods Manufactured - Finished Goods Ending.
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