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# Accounting problems

Part 1. The following data (in thousands of dollars) have been taken from the accounting records of Karmana Corporation for the just completed year. (This company puts all manufacturing overhead into work in process during the month.)

Sales \$950
Raw materials inventory, beginning \$10
Raw materials inventory, ending \$30
Purchases of raw materials \$120
Direct labor \$180
Selling expenses \$140
Work in process inventory, beginning \$70
Work in process inventory, ending \$40
Finished goods inventory, beginning \$100
Finished goods inventory, ending \$80

Use these data to answer the following series of questions.

A. The cost of the raw materials used in production during the year (in thousands of dollars) was:

B. The cost of goods manufactured (finished) for the year (in thousands of dollars) was:

C. The cost of goods sold for the year (in thousands of dollars) was:

D. The net operating income for the year (in thousands of dollars) was:

Part 2. Lund Company applies manufacturing overhead to jobs using a predetermined overhead rate of 75% of direct labor cost. Any under- or overapplied overhead cost is closed out to Cost of Goods Sold at the end of the month. During March, the following transactions were recorded by the company:

Raw materials (all direct materials):
Purchased during the month \$27,000
Used in production \$28,000

Labor:
Direct labor hours worked during the month 2,500
Direct labor cost incurred \$20,000
Indirect labor cost incurred \$5,500

Manufacturing overhead costs incurred (total) \$17,000

Inventories:
Raw materials (all direct) March 31 \$7,500
Work in process, March 1 \$10,500
Work in process, March 31 \$14,000*

*contains \$5,000 of direct labor cost

A. The Cost of Goods Manufactured for March was:

B. Would the entry to dispose of the under- or overapplied overhead cost for the month increase or decrease net income?

#### Solution Summary

This shows how to work with data to determine cost of goods manufactured, net profit, and other accounting problems.

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