CHAPTER 4product and service costing:overhead application and job-order system
questions for writing and discussion
1
1.Cost measurement is the process of determining the dollar amounts of direct materials, direct labor, and overhead that should be assigned to production. Cost accumulation (or assignment) is the process of associating costs with the units produced. Essentially, cost measurement is concerned with whether actual or estimated costs should be used, and cost assignment is concerned with whether costs should be assigned to jobs or processes.
2.Actual overhead rates are rarely used because managers cannot wait until the end of the year to obtain product costs. Information on product costs is needed as the year unfolds for planning, control, and decision making.
3.Job-order costing accumulates costs by jobs, and process costing accumulates costs by processes. Job-order costing is suitable for operations that produce custom-made products that receive different doses of manufacturing costs. Process costing, on the other hand, is suitable for operations that produce homogeneous products that receive equal doses of manufacturing costs in each process.
4.The principal difference between a manual job-order costing system and an automated job-order costing system is the nature of the records. In an automated system, terminals can be used to input data directly to the job, thus eliminating the need for many source documents such as time tickets and materials requisition forms. Even if these forms are used and the data are entered on a batch basis, the job-order cost sheet has been replaced with an electronic record. Instead of cabinets with collections of job-order cost sheets, files are collections of job records located on disk or tape.
5.An overhead variance is the difference between actual overhead and applied overhead. Underapplied overhead means that the applied overhead is less than the actual
overhead. Overapplied overhead means that applied overhead is greater than the actual overhead.
6.Overhead variances are either closed to cost of goods sold or they are prorated among cost of goods sold, finished goods inventory, and work-in-process inventory. Since overhead variances are usually immaterial, they are normally closed to cost of goods sold.
7.Materials requisition forms serve as the source document for posting materials usage and costs to individual jobs. Time tickets serve a similar function for labor. Predetermined overhead rates are used to assign overhead costs to individual jobs.
8.Multiple overhead rates often produce a more accurate assignment of overhead costs to jobs. For example, if jobs do not pass through all departments, departmental overhead rates give a better picture of job cost.
9.Activity drivers are those factors that drive or cause the consumption of overhead. Knowing what drives overhead costs allows a more accurate assignment of overhead costs to products.
10.Expected actual activity is the level of production activity expected for the coming year. Normal activity is the long-run average activity level. Practical activity is the level of activity achievable under efficient operating conditions. Theoretical activity is the level of activity achievable under ideal operating conditions.
11.Assignment using normal activity produces less fluctuation in period-to-period overhead assignments. It also avoids assigning the costs of idle capacity to products when production is down.
12.Many firms have multiple products, and adding units of different products will not produce a meaningful measure of output.
13.The predetermined rate is multiplied by the actual measure of the cost driver on which the rate is based.
14.Applied overhead is the overhead assigned to production using the predetermined rate. Budgeted overhead is the overhead cost planned for the coming period. Applied and budgeted overhead are the same only if the actual level of activity is equal to the level of activity used to compute the predetermined rate. Applied overhead is the estimated overhead cost assignment and will equal actual overhead only if the estimate is on target. One way in which the applied overhead will equal actual overhead is when budgeted overhead equals actual overhead and when the actual level of activity equals the level used to compute the predetermined rate.
15.Unit cost:
DM$7,500
DL10,000
OH ($5 1,000)5,000
Total$22,500
Unit cost = $22,500/500 = $45
16.More paperwork is required. Labor and materials are assigned to departments in a process costing system. In a job-order costing system, labor and materials must be tracked to each job, requiring time tickets and more use of materials requisitions. Additionally, a job-order costing system requires a separate job cost sheet for each job.
17.The normal cost of goods sold uses applied overhead only. Adjusted cost of goods sold is the normal cost of goods sold adjusted for an overhead variance (increased for underapplied and decreased for overapplied).
1
Exercises
4–1
a.Bicycle production is manufacturing. The product is tangible and fairly homogeneous. (One bicycle model is much the same as another.) Production is separate from consumption.
b.Pharmaceuticals are manufacturing. A drug is tangible, and consumption is separate from production. The product is not heterogeneous in that variation is minimized. (Drug companies must meet certain standards regulating allowable variation in the chemical composition of each tablet or dose.)
c.Income tax preparation is a service. It is heterogeneous in that the quality of work varies from preparer to preparer and also to various returns prepared by the same preparer. While the printed return is tangible, the knowledge required for it is not. In addition, the return cannot be prepared without the assistance of the taxpayer. Production and consumption are intertwined.
d.The application of artificial nails is a service. It is heterogeneous in that the quality of work varies from manicurist to manicurist. Additionally, the same manicurist may do a better job with some customers than with others. The production and consumption process are overlapping. While the nails are tangible, the application process is not and cannot be inventoried.
e.Glue production is manufacturing. The product is tangible and fairly homogeneous. (One bottle of glue is much the same as another produced by the same firm.) Production is separate from consumption.
f.Child care is a service. The services rendered are not tangible and cannot be inventoried. They are heterogeneous. One caregiver differs from another, and the same caregiver may vary in quality (e.g., patience, creativity) throughout the day and/or with different children. Production and consumption take place simultaneously.
4–2
1.Rainking Company should use job-order costing because each installation is unique and made-to-order. Materials may differ from office to office, as may direct labor.
2.Predetermined overhead rate = $65,000/5,000 = $13/DLH
Wage rate = $75,000/5,000 = $15/DLH
Direct materials$3,500
Direct labor ($15 50)750
Overhead ($13 50)650
Total cost$4,900
3.The company cannot use an actual costing system; it needs to know the cost of each installation as it is completed. Since overhead is incurred unevenly throughout the year, and certain overhead bills arrive after the need for unit costs occurs, overhead must be applied to production using a predetermined rate.
4–3
1.Overhead applied to production = $13 5,040 = $65,520
2.Applied overhead$65,520
Actual overhead64,150
Overapplied overhead$1,370
3.Cost of goods sold will decrease by $1,370.
4–4
1.Waterpro should use a process costing system because each watering system is like every other so the cost of direct materials, direct labor, and overhead stays constant from job to job.
2.If Waterpro uses an actual costing system, the average amounts for actual direct materials, actual direct labor, and actual overhead must be calculated for each month.
Average AmountsJuneJulyAugust
Direct materials$200$200$200
Direct labor210210210
Overhead60012084
Total unit cost$1,010$530$494
3.Predetermined overhead rate = $60,000/600 = $100 per system installed
Unit cost per system = $200 + $210 + $100 = $510
The cost of the basic system does not change from month to month.
4–5
1.$1,784,000/400,000 = $4.46 per direct labor hour
2.$4.46 397,500 = $1,772,850
Work-in-Process Inventory...... 1,772,850
Overhead Control...... 1,772,850
3.Applied overhead$1,772,850
Actual overhead1,770,050
Overapplied overhead$2,800
Overhead Control...... 2,800
Cost of Goods Sold...... 2,800
4–6
1.Predetermined overhead rate = $952,000/34,000 = $28.00 per DLH
2.Applied overhead = ($28 33,100) = $926,800
3.Actual overhead$950,000
Applied overhead926,800
Underapplied overhead$23,200
4.Prime cost$3,500,000
Applied overhead926,800
Total cost$4,426,800
Divided by units÷500,000
Unit cost$8.8536
4–7
1.Predetermined overhead rate = $952,000/140,000 = $6.80 per MHr
2.Applied overhead = ($6.80 137,000) = $931,600
3.Actual overhead$950,000
Applied overhead931,600
Underapplied overhead$18,400
4.Prime cost$3,500,000
Applied overhead931,600
Total cost$4,431,600
Divided by units÷500,000
Unit cost$8.8632
5.Clooney needed to determine what caused its overhead. Was it primarily labor driven (i.e., composed predominantly of fringe benefits, indirect labor, personnel costs) or was it machine oriented (i.e., composed of depreciation on machinery, utilities, maintenance)? It is impossible for us to decide on the basis of the numbers given in this exercise alone.
4–8
1.Bill predetermined overhead rate= $304,000/16,000 = $19 per MHr
Ted predetermined overhead rate= $220,000/$400,000 = 0.55 or
= 55% of materials cost
2.Bill:
Actual overhead $305,000
Applied overhead ($19 15,990) 303,810
Underapplied overhead$ 1,190
Ted:
Actual overhead $216,000
Applied overhead (0.55 $395,000) 217,250
Overapplied overhead$ 1,250
4–9
1.a.Materials Inventory...... 23,175
Accounts Payable...... 23,175
b.Work-in-Process Inventory...19,000
Materials Inventory...... 19,000
c.Work-in-Process Inventory...17,850
Wages Payable...... 17,850
d.Overhead Control...... 15,500
Cash...... 15,500
e.Work-in-Process Inventory... 14,700*
Overhead Control...... 14,700
f.Finished Goods Inventory....36,085
Work-in-Process Inventory.36,085
g.Cost of Goods Sold...... 30,000
Finished Goods Inventory..30,000
Accounts Receivable...... 36,000
Sales Revenue...... 36,000
*$17,850/$8.50 = 2,100 DLH; ($7 2,100 DLH) = $14,700
4–9Concluded
2.a.Materials Inventory:
Beginning inventory$ 5,170
Add: Purchases 23,175
Less: Requisitions (19,000)
Ending inventory$ 9,345
b.Work-in-Process Inventory:
Beginning inventory $11,200
Add: Direct Materials 19,000
Add: Direct Labor 17,850
Add: Overhead applied 14,700
Less: Cost of Goods Manufactured (36,085)
Ending inventory $26,665
c.Overhead Control:
Actual overhead$ 15,500
Applied overhead 14,700
Underapplied overhead$ 800(debit balance)
d.Finished Goods Inventory:
Beginning inventory$ 2,630
Add: Cost of Goods Manufactured 36,085
Less: Cost of Goods Sold (30,000)
Ending inventory$ 8,715
4–10
1.$3,800,000/250,000 = $15.20 per MHr
2.$3,876,000Applied overhead ($15.20 255,000)
3,820,000Actual overhead
$ 56,000Overapplied overhead
3.Overhead Control...... 56,000
Cost of Goods Sold...... 56,000
4.Work-in-Process Inventory$ 384,000(19.2%: 384,000/2,000,000)
Finished Goods Inventory 416,000 (20.8%: 416,000/2,000,000)
Cost of Goods Sold 1,200,000(60.0%: 1,200,000/2,000,000)
$2,000,000
Overhead Control...... 56,000
Work-in-Process Inventory... 10,752(19.2% $56,000)
Finished Goods Inventory.... 11,648(20.8% $56,000)
Cost of Goods Sold...... 33,600(60.0% $56,000)
4–11
1.a.Materials Inventory...... 92,500
Accounts Payable...... 92,500
b.Work-in-Process Inventory...72,500
Overhead Control...... 7,000
Materials Inventory...... 79,500
c.Work-in-Process Inventory...52,000
Overhead Control...... 15,750
Wages Payable...... 67,750
d.Overhead Control...... 49,000
Miscellaneous Payables....49,000
e.Work-in-Process Inventory...65,000
Overhead Control...... 65,000(52,000 125%)
4–11Concluded
f.Finished Goods Inventory....160,000
Work-in-Process Inventory. 160,000
g.Cost of Goods Sold...... 140,000
Finished Goods Inventory.. 140,000
Accounts Receivable...... 210,000
Sales Revenue...... 210,000(140,000 150%)
h.Cost of Goods Sold*...... 6,750
Overhead Control...... 6,750
*Actual overhead = $7,000 + $15,750 + $49,000 = $71,750
Actual overhead$71,750
Applied overhead65,000
Underapplied overhead$6,750
2.After underapplied overhead is charged to Cost of Goods Sold:
Overhead Control7,000 / 65,000
15,750
49,000
6,750 / 6,750
Bal.0
3.
Work-in-Process InventoryBeg. Bal.10,000 / 160,000
72,500
52,000
65,000*
End. Bal.39,500
*No actual overhead costs were assigned to Work-in-Process Inventory as the company does not use an actual costing system. The amount assigned to Work-in-Process Inventory was the applied overhead of $65,000.
4–12
1.Applied overhead ($5.20 25,000)...... $130,000
Actual overhead:
Indirect labor...... $35,000
Indirect materials...... 10,000
Depreciation...... 55,000
Maintenance...... 25,000
Miscellaneous...... 15,500 140,500
Underapplied overhead...... $10,500
2.Hamblin Products, Inc.
Statement of Cost of Goods Manufactured
For the Year Ended December 31, 20XX
Direct materials:
Beginning materials inventory...... $ 25,000
Purchases of materials...... 200,000
Total materials available...... $225,000
Ending materials inventory...... 35,000
Direct materials used...... $190,000
Direct labor...... 175,000
Overhead:
Indirect labor...... $ 35,000
Indirect materials...... 10,000
Depreciation...... 55,000
Maintenance...... 25,000
Miscellaneous...... 15,500
$140,500
Less: Underapplied overhead...... 10,500
Overhead applied...... 130,000
Total manufacturing costs added...... $495,000
Add: Beginning work-in-process inventory... 110,000
Less: Ending work-in-process inventory...... (80,250)
Cost of goods manufactured...... $524,750
Cost of goods manufactured includes applied overhead rather than actual overhead. This is consistent with a normal costing system.
4–13
1.OH rate = $75,000/15,000 = $5 per MHr
2.Dept. A: $60,000/10,000 = $6 per MHr
Dept. B: $15,000/5,000 = $3 per MHr
3.Job 15Job 22
Plantwide:
70 $5=$35070 $5=$350
Departmental:
20 $6=$12050 $6=$300
50 $3=15020 $3=60
$270$360
If departmental machine hours better explain overhead consumption, then the departmental rates would provide more accuracy. Department A appears to be more overhead intensive, and it seems reasonable to argue that jobs spending more time in Department A ought to receive more overhead.
4.Plantwide rate: $90,000/15,000 = $6
Dept. B: $30,000/5,000 = $6
Job 15Job 22
Plantwide:
70 $6=$42070 $6=$420
Departmental:
20 $6=$12050 $6=$300
50 $6=30020 $6=120
$420$420
Assuming that machine hours is a good cost driver, the departmental rates reveal that overhead consumption is the same in each department. In this case, there is no need for departmental rates, and a plantwide rate is sufficient.
4–14
1.Job 43:
Direct materials$ 744
Direct labor 1,980
Overhead 1,908($5.30 360)
$4,632
Unit cost = $4,632/120 = $38.60
Job 44:
Direct materials$ 640
Direct labor 2,480
Overhead 2,120($5.30 400)
$5,240
Unit cost = $5,240/200 = $26.20
2.Ending work-in-process inventory (Job 45):
Direct materials$ 600
Direct labor 1,240
Overhead 1,060($5.30 200)
$2,900
3.Finished Goods Inventory...... 9,872*
Work-in-Process Inventory... 9,872
*$4,632 + $5,240 = $9,872
Cost of Goods Sold...... 5,240
Finished Goods Inventory.... 5,240
Accounts Receivable...... 7,336**
Sales Revenue...... 7,336
**$5,240 140% = $7,336
4–15
1.Applied overhead=Direct labor dollars Overhead rate
$120,000=$80,000 Overhead rate
Overhead rate=1.5, or 150% of direct labor dollars
2.$120,000Applied overhead
128,500Actual overhead
$8,500Underapplied overhead
3.Direct labor$ 80,000
Direct materials 40,000
Overhead applied 120,000
$240,000
+ Beginning Work-in-Process Inventory 20,000
– Ending Work-in-Process Inventory (30,000)
Cost of goods manufactured $230,000
Note: The total credits to Work-in-Process Inventory (or debits to Finished Goods Inventory) for the quarter equal the cost of goods manufactured.
4.Cost of Goods Sold...... 8,500
Overhead Control...... 8,500
Adjusted cost of goods sold:
$200,000
8,500
$208,500
5.Direct labor $10,000 (1,000 $10)
Direct materials 5,000*
Overhead 15,000($10,000 150%)
Ending work-in-process inventory $30,000
*Direct materials = $30,000 – $10,000 – $15,000
problems
4–16
1.Dept. 1: $410,000/100,000 = $4.10 per DLH
Dept. 2: $184,500/30,000 = $6.15 per MHr
2.Dept. 1Dept. 2
Applied overhead $401,800a $196,800b
Actual overhead 404,000 195,000
$ 2,200Underapplied$ 1,800 Overapplied
overhead overhead
a$4.10 98,000
b$6.15 32,000
Firm: $2,200 $1,800 = $400 Underapplied overhead
3.Cost of Goods Sold...... 400
Overhead Control...... 400
4.Costs for Job #713:
Dept. 1Dept. 2
Direct materials $1,580.00 $2,650.00
Direct labor 937.00 400.00
Overhead* 512.50 1,291.50
$3,029.50 $4,341.50
*$4.10 125 and $6.15 210
Total cost: $3,029.50 + $4,341.50 = $7,371.00
Unit cost: $7,371/50 = $147.42
4–17
1.
JOB-ORDER COST SHEET
Job 33
DIRECT MATERIALSDIRECT LABOROVERHEAD
Req. No.AmountTicketHrs.RateAmountCostRateAmount
$2,000$1,900 $1,330
12,500250205,000$5,0000.70* 3,500
COST SUMMARY
Direct materials$14,500
Direct labor6,900
Overhead4,830
Total cost$26,230
*$1,330/$1,900 = 0.70
JOB-ORDER COST SHEET
Job 34
DIRECT MATERIALSDIRECT LABOROVERHEAD
Req. No.AmountTicketHrs.RateAmountCostRateAmount
$1,410$1,340$ 938
11,200275154,125$4,1250.70* 2,888**
COST SUMMARY
Direct materials$12,610
Direct labor5,465
Overhead3,826
Total cost$21,901
*$938/$1,340 = 0.70
**Rounded
4–17Continued
JOB-ORDER COST SHEET
Job 35
DIRECT MATERIALSDIRECT LABOROVERHEAD
Req. No.AmountTicketHrs.RateAmountCostRateAmount
$3,560$4,000 $2,800
5,500140121,680$1,6800.70* 1,176
COST SUMMARY
Direct materials$9,060
Direct labor5,680
Overhead3,976
Total cost$18,716
*$2,800/$4,000 = 0.70
2.Journal entries:
a.Materials Inventory...... 27,000
Accounts Payable...... 27,000
b.Work-in-Process Inventory...29,200
Materials Inventory...... 29,200
c.Work-in-Process Inventory...10,805
Wages Payable...... 10,805
d.Work-in-Process Inventory... 7,564*
Overhead Control...... 7,564
*$10,805 0.70 = $7,564 (rounded)
e.Overhead Control...... 7,618
Miscellaneous Accounts...7,618
f.Finished Goods Inventory....21,901
Work-in-Process Inventory.21,901
4–17Concluded
g.Cost of Goods Sold...... 21,901
Finished Goods Inventory..21,901
Accounts Receivable...... 35,042*
Sales Revenue...... 35,042
*($21,901 160%)
3.
Materials Inventory / Work-in-Process InventoryBeg. Bal.12,000 / (b)29,200 / Beg. Bal.19,278 / (f)21,901
(a)27,000 / (b)29,200
End. Bal.9,800 / (c)10,805
(d)7,564
End. Bal.44,946
Finished Goods Inventory
Beg. Bal.20,000 / (g)21,901
(f)21,901
End. Bal.20,000
4–18
1.a.Materials Inventory...... 50,100
Accounts Payable...... 50,100
b.Work-in-Process Inventory...30,000
Overhead Control...... 15,000
Materials Inventory...... 45,000
c.Work-in-Process Inventory...70,000
Overhead Control...... 32,000
Administrative Expenses.....18,000
Selling Expenses...... 9,900
Wages Payable...... 129,900
d.Overhead Control...... 13,400
Accumulated Depreciation.13,400
e.Overhead Control...... 1,450
Property Taxes Payable....1,450
f.Overhead Control...... 6,200
Prepaid Insurance...... 6,200
g.Overhead Control...... 6,000
Utilities Payable...... 6,000
h.Selling Expenses...... 7,200
Advertising Payable...... 7,200
i.Administrative Expenses.....1,500
Selling Expenses...... 650
Accumulated Depreciation.2,150
j.Administrative Expenses.....750
Legal Fees Payable...... 750
k.Work-in-Process Inventory... 72,000*
Overhead Control...... 72,000
($9 8,000)
l.Finished Goods Inventory....158,000
Work-in-Process Inventory.158,000
4–18Continued
2.
Materials Inventory / Work-in-Process InventoryBeg. Bal.5,000 / (b)45,000 / Beg. Bal.30,000 / (l)158,000
(a)50,100 / (b)30,000
End. Bal.10,100 / (c)70,000
(k)72,000
End. Bal.44,000
Finished Goods Inventory / Overhead Control
Beg. Bal.60,000 / (b)15,000 / (k)72,000
(l)158,000 / (c)32,000
End. Bal.218,000 / (d)13,400
(e)1,450
(f)6,200
(g)6,000
Bal.2,050*
*Underapplied overhead
4–18Concluded
3.Perlmutter Products, Inc.
Statement of Cost of Goods Manufactured
For the Month Ended May 31, 20XX
Direct materials...... $30,000
Direct labor...... 70,000
Overhead:
Indirect materials...... $15,000
Indirect labor...... 32,000
Depreciation, plant, and equipment...... 13,400
Property taxes...... 1,450
Utilities, factory...... 6,200
Insurance...... 6,000
$74,050
Less: Underapplied overhead...... 2,050
Overhead applied...... 72,000
Total manufacturing costs added...... $172,000
Add: Beginning work-in-process inventory... 30,000
Less: Ending work-in-process inventory...... (44,000)
Cost of goods manufactured...... $158,000
4.Cost of goods sold increases by $2,050.
4–19
1.Journal entries:
a.Materials Inventory...... 280,000
Accounts Payable...... 280,000
b.Work-in-Process Inventory...300,000
Materials Inventory...... 300,000
c.Overhead Control...... 82,000
Materials Inventory...... 82,000
d.Work-in-Process Inventory...110,000
Overhead Control...... 60,000
Selling and Admin. Expense..70,000
Wages Payable...... 240,000
e.Overhead Control...... 5,000
Prepaid Insurance...... 5,000
f.Selling Expenses...... 30,000
Advertising Payable...... 30,000
g.Overhead Control...... 24,000
Rent Payable...... 24,000
h.Administrative Expenses.....10,000
Accumulated Depreciation.10,000
i.Overhead Control...... 7,850
Miscellaneous Accounts...7,850
j.Overhead Control...... 7,000
Administrative Expenses.....3,000
Utilities Payable...... 10,000
k.Work-in-Process Inventory...165,000
Overhead Control...... 165,000*
*($110,000 150%)
4–19Continued
l.Accounts Receivable...... 983,000
Sales Revenue...... 983,000
Finished Goods Inventory....565,000
Work-in-Process Inventory. 565,000**
Cost of Goods Sold...... 590,000
Finished Goods Inventory.. 590,000**
**See T-accounts for Work-in-Process Inventory and Finished Goods
Inventory.
2.
Materials Inventory / Work-in-Process InventoryBeg. Bal.170,000 / (b)300,000 / Beg. Bal.20,000 / (l) 565,000*
(a)280,000 / (c)82,000 / (b)300,000
End. Bal.68,000 / (d)110,000
(k)165,000
End. Bal.30,000
Finished Goods Inventory / Overhead Control
Beg. Bal.45,000 / (l)590,000* / (c)82,000 / (k)165,000
(l)565,000 / (d)60,000
End. Bal.20,000 / (e)5,000
(g)24,000
(i)7,850
Cost of Good Sold / (j)7,000
(l)590,000 / Bal.20,850
*Balancing figures
4–19Continued
3.$165,000Applied overhead
185,850Actual overhead
$20,850Underapplied overhead
Cost of Goods Sold...... 20,850
Overhead Control...... 20,850
Work-in-Process Inventory$30,000(4.687% $20,850 = $977)
Finished Goods Inventory20,000(3.125% $20,850 = $652)
Cost of Goods Sold590,000(92.188% $20,850 = $19,221)
$640,000
Work-in-Process Inventory...... 977
Finished Goods Inventory...... 652
Cost of Goods Sold...... 19,221
Overhead Control...... 20,850
4.First assumption: Closing to cost of goods sold:
Polson Manufacturing Company
Income Statement
For the Year Ended December 31, 20XX
Sales revenue...... $983,000
Cost of goods sold:
Beginning finished goods inventory...... $ 45,000
Cost of goods manufactured...... 565,000
Goods available for sale...... $610,000
Ending finished goods inventory...... 20,000
Normal cost of goods sold...... $590,000
Plus underapplied overhead...... 20,850
Adjusted cost of goods sold...... 610,850
Gross margin...... $372,150
Selling and administrative expenses*...... 113,000
Operating income...... $259,150
*Selling & administrative expenses:$70,000
30,000
10,000
3,000
$113,000
4–19Concluded
Second assumption: Prorating:
Polson Manufacturing Company
Income Statement
For the Year Ended December 31, 20XX
Sales revenue...... $983,000
Cost of goods sold:
Beginning finished goods inventory...... $ 45,000
Cost of goods manufactured...... 565,000
Goods available for sale...... $610,000
Ending finished goods inventory...... 20,000
Normal cost of goods sold...... $590,000
Plus underapplied overhead...... 19,221
Adjusted cost of goods sold...... 609,221
Gross margin...... $373,779
Selling and administrative expenses*...... 113,000
Operating income...... $260,779
*Selling and administrative expenses:$70,000
30,000
10,000
3,000