Normal Costing and COGM, COGS, and Income Statement Harwood Company is a manufac

Question

Normal Costing and COGM, COGS, and Income Statement Harwood Company is a manufacturer of custom-made equipment. The company uses a job-order costing system and applies manufacturing overhead cost to jobs on a basis of direct labor hours. At the beginning of 2014, the following estimates were made as a basis for computing a predetermined overhead rate for the year: manufacturing overhead cost, $360,000; and direct labor hours, 18,000.

The following transactions took place during the year (all purchases and services were acquired on account):

a. Raw materials were purchased for use in production, $200,000.

b. Raw materials were requisitioned for use in production (all direct materials), $185,000.

c. Utility bills were incurred, $70,000 (90 percent related to factory operations, and the remainder related to selling and administrative activities).

d. Salary and wage costs were incurred: Direct labor (19,500 hours) $230,000 Indirect labor 90,000 Selling and administrative salaries 110,000

e. Maintenance costs were incurred in the factory, $51,000.

f. Advertising costs were incurred, $136,000.

g. Depreciation was recorded for the year, $95,000 (80 percent related to factory equipment and the remainder related to selling and administrative equipment).

h. Rental cost incurred on buildings, $120,000 (85 percent related to factory operations and the remainder related to selling and administrative facilities).

i. Sales for the year (all on account) totaled $1,200,000. These goods cost $821,000 to manufacture (after adjusting for the applied overhead).

The balances in the inventory accounts at the beginning of the year were:

Raw materials $30,000

Work in process 21,000

Finished goods 60,000

The balances in the inventory accounts at the ending of the year were:

Raw materials ?

Work in process $35,000

Finished goods 22,000

REQUIRED:

1. Prepare a schedule of cos of goods manufactured in good form, adjusting for normal costing.

2. Prepare a cost of goods sold in good form, adjusting for normal costing.

3. Prepare an income statement for the year in good form. Ignore income taxes.

Explanation / Answer

Harwood Company Details Amt $ Estimated manufacturing overhead for the year                 360,000 Direct Labor hours estimated                    18,000 Predetermined Manufacturing Overhead rate per hor                      20.00 Cost of Goods Manufactured Details Amt $ Raw Materials Consumed                   185,000 Direct Labor cost                 230,000 Manufacturing Overhead on 19500 Direct Labor hours @ 20 /DLH                 390,000 Total Manufacturing cost of the year                 805,000 Add : Opening balance WIP                    21,000 Less : Closing balance wiP                 (35,000) Cost og Goods Manufactured                 791,000 Cost Of Goods Sold Opening Balance Finished goods                    60,000 Add : Cost of goods manufactured                 791,000 Less: Closing stock Finished goods                 (22,000) Less : Manufacturing Overhead Overapplied                    (8,000) Cost Of Goods Sold                 821,000 Manufacturing Overhead Over/Underapplied Actual overhead incurred Utilities                    63,000 Indirect labor                    90,000 Maint cost                    51,000 Factory Depreciation                    76,000 Rent factory                 102,000 Total                 382,000 Actual overhead applied                 390,000 Manufacturing OH overapplied                      8,000

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