The following data from the just completed year are taken from the accounting records of Mason Company:

Sales $ 657,000

Direct labor cost $ 84,000

Raw material purchases $ 134,000

Selling expenses $ 101,000

Administrative expenses $ 49,000

Manufacturing overhead applied to work in process $ 203,000

Actual manufacturing overhead costs $ 225,000

Inventories

Beginning of Year End of Year

Raw materials $ 8,500 $ 10,900

Work in process $ 5,500 $ 20,400

Finished goods $ 79,000 $ 25,900

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.

Answer and Explanation:

1. The preparation of the schedule of cost of goods manufactured is presented below:

Mason Company

Cost of Goods manufactured Statement

Beginning work-in-process inventory $5,500

Manufacturing costs:

Direct materials:

Beginning inventory $8,500

Purchases $134,000

Materials available $142,500

Less: Ending inventory - $10,900

Direct materials used $131,600

Direct labor cost $84,000

Other manufacturing costs $203,000

Total manufacturing costs: $418,600

Total costs of work-in-process $424,100 Less: Ending work-in-process - $20,400

Cost of goods manufactured $403,700

2. The preparation of the schedule of cost of goods sold is presented below:

Mason Company

Cost of Goods Sold Statement

Cost of goods manufactured $403,700

Add: opening stock of finished goods $79,000

Less: Closing stock of finished goods - $25,900

Unadjusted cost of goods sold $456,800

Add: Under applied overhead $22,000

Cost of goods sold $478,800

3. The preparation of the income statement is presented below:

Mason Company

Income statement

Sales $657,000

Less: Cost of goods sold - $478,800

Gross profit $178,200

Less: expenses

Selling expenses $101,000

Administrative expenses $49,000 - $150,000

Net income $28,200