Question

Star Videos, Inc., produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1 are given below. Star Videos, Inc. Balance Sheet January 1 Assets $ 78, 600 103,400 Cash Accounts receivable Inventories: $ 19,800 Raw materials (film, costumes) Videos in process Finished videos awaiting sale Prepaid insurance Studio and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Retained earnings Total liabilities and stockholders' equity 62,600 84,400 166, 000 9,250 610, 000 $ 967, 250 $ 175,000 792, 250 $ 967, 250 Because the videos differ in length and in complexity of production, the company uses a job-order costing system to determine the cost of each video produced. Studio (manufacturing) overhead is charged to videos on the basis of camera-hours of activity. The company's predetermined overhead rate for the year ($40 per camera-hour) is based on a cost formula that estimated $280,000 in manufacturing overhead for an estimated allocation base of 7,000 camera-hours. Any underapplied or overapplied overhead is closed to cost of goods sold. The following transactions were recorded for the year. a. Film, costumes, and similar raw materials purchased on account, $216,500. b. Film, costumes, and other raw materials issued to production, $225,500 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect). c. Utility costs incurred (on account) in the production studio, $87.000. d. Depreciation recorded on the studio, cameras, and other equipment, $109,200. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration. e. Advertising expense incurred (on account). $135.000. f. Salaries and wages paid in cash as follows:

Answer 1

Answer-1

Star Videos, Inc. Transaction Analysis For the year ended December 31 Account Raw Video in Finished receivable Materials process Goods $ 103,400 $ 19,000 $ 62,600 $ 84,400 216,500 (225,500) 180,400 Manufacturing overhead Cash 78,600 Prepaid Studio & Account Insurance equipment = || payable $ 9,250 $ 610,000 $ 175,000 216,500 Retained Earnings $ 792,250 $ (a) (b) (c) 45,100 87,000 81,900 87,000 (109,200) 135,500 (262,600) 95,400 70,000 5,670 (27,300) (135,500) (97,200) (2,430) (13,350) (8) (8,100) Beginning Balance @1/1 Raw material purchases Raw material used Utility costs Depreciation charges Advertising Salaries and wages Prepaid insurance Miscellaneous marketing Applied overhead Transfer completed video to finished goods Sales Transfer finished goods to goods sold Cash collection from customers Payment to suppliers Overapplied overhead Ending balances @12/31 (h) 13,350 (290,000) 290,000 (586,000) 586,000 (k) 986,000 986,000 (632,470) (632,470) (m) (936,000) 936,000 (598,000) (598,000) 330 330 $ 154,000 $ 153,400 $ 10,000 $ 42,400 $ 37,930 $ - $ 1,150 $ 500,800 $ 29,350 $ 870,330

Answer-2 & 3

Star Videos, Inc. Schedule of Cost of Goods Manufactured For the Year Ended December 31 Direct Materials: Beginning raw materials inventory 19,000 Add: Purchase of raw materials 216,500 Total raw materials available 235,500 Less: Ending raw materials inventory 10,000 Raw materials used in production 225,500 Less: Indirect materials used 45,100 Direct labour Manufacturing overhead applied to work in process Total manufacturing costs Add: Beginning videos in process inventory 180,400 95,400 290,000 565,800 62,600 628,400 42,400 586,000 Less: Ending videos in process inventory Cost of goods manufactured Star Videos, Inc. Schedule of Cost of Goods Sold For the Year Ended December 31 Beginning finished goods inventory 84,400 Add: Cost of goods manufactured 586,000 Cost of goods available for sale Less: Ending finished goods inventory Unadjusted cost of goods sold Less: Overapplied ovehead Adjusted cost of goods sold 670,400 37,930 632,470 330 632,140

Answer-4

986,000 632,140 353,860 Star Videos, Inc. Income Statement For the Year Ended December 31 Sales Cost of goods sold Gross margin Selling and administrative expenses: Depreciation expense 27,300 Advertisisng expense 135,500 Administrative salaries 97,200 Insurance expense 2,430 Miscellaneous expense 13,350 Total selling and administrative expenses 275,780 Net operating Income 78,080