The following data from the just completed year are taken from the accounting records of Mason Company: Sales $ 656,000 Direct labor cost $ 89,000 Raw material purchases $ 137,000 Selling expenses $ 106,000 Administrative expenses $ 48,000 Manufacturing overhead applied to work in process $ 206,000 Actual manufacturing overhead costs $ 226,000 Inventories Beginning Ending Raw materials $ 8,200 $ 11,000 Work in process $ 5,600 $ 20,500 Finished goods $ 80,000 $ 25,800 Required: 1. Prepare a schedule of cost of goods manufactured. Assume all raw materials used in production were direct materials. 2. Prepare a schedule of cost of goods sold. Assume that the company's underapplied or overapplied overhead is closed to Cost of Goods Sold. 3. Prepare an income statement.

Cost of Goods Manufactured $ 434,300

Adjusted Cost of Goods Sold $ 488,500

Operating Income $ 13,500

Explanation:

We do the following additions and subtractions to find the cost of goods manufactured.

Mason Company:

Schedule of Cost of Goods Manufactured

Inventories Beginning Raw materials $ 8,200

Add Raw material purchases $ 137,000

Less Inventories Ending Raw materials $ 11,000

Direct Materials Used $134,200

Add Direct labor cost $ 89,000

Add Actual manufacturing overhead costs $ 226,000

Total Manufacturing Costs $449,200

Add Inventories Beginning Work in process $ 5,600

Cost of Goods Available for Manufacture 454,800

Inventories Ending Work in process $ 20,500

Cost of Goods Manufactured $ 434,300

The cost of goods manufactured is again added and subtracted with finished goods inventories to prepare the schedule of cost of goods sold.

Mason Company:

Schedule of Cost of Goods Sold

Inventories Beginning Raw materials $ 8,200

Add Raw material purchases $ 137,000

Less Inventories Ending Raw materials $ 11,000

Direct Materials Used $134,200

Add Direct labor cost $ 89,000

Add Applied manufacturing overhead costs $ 206,000

Total Manufacturing Costs $429,200

Add Inventories Beginning Work in process $ 5,600

Cost of Goods Available for Manufacture 434,800

Inventories Ending Work in process $ 20,500

Cost of Goods Manufactured $ 414,300

Add Inventories Beginning Finished goods $ 80,000

Cost of Goods Available for Sale $ 494,300

Less Inventories Ending Finished goods $ 25,800

Un adjusted Cost of Good Sold $ 468,500

Add Under-applied Manufacturing Overhead 20,000

Adjusted Cost of Goods Sold $ 488,500

If we add the applied manufacturing overhead then the cost of goods sold is adjusted by adding the amount underapplied.

Mason Company:

Income Statement

Sales $ 656,000

Less Cost of Goods Sold $ 488,500 (as calculated above)

Gross Profit $ 167,500

Less Selling expenses $ 106,000

Less Administrative expenses $ 48,000

Operating Income $ 13,500