Question

Gold Nest Company of Guandong, China, is a family-owned enterprise that makes birdcages for the South China market. The company sells its birdcages through an extensive network of street vendors who receive commissions on their sales. The company uses a job-order costing system in which overhead is applied to jobs on the basis of direct labor cost. Its predetermined overhead rate is based on a cost formula that estimated $103,500 of manufacturing overhead for an estimated activity level of $45,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows:

Raw materials $ 10,600

Work in process $ 4,400

Finished goods $ 8,900

During the year, the following transactions were completed:

Raw materials purchased for cash, $ 166,000. Raw materials used in production, $144,000 (materials costing $127,000 were charged directly to jobs; the remaining materials were indirect). Cash paid to employees as follows: Direct labor $ 151,000 Indirect labor $ 269,100 Sales commissions $ 21,000 Administrative salaries $ 42,000 Cash paid for rent during the year was $18,400 ($13,800 of this amount related to factory operations, and the remainder related to selling and administrative activities). Cash paid for utility costs in the factory, $15,000. Cash paid for advertising, $13,000. Depreciation recorded on equipment, $22,000. ($18,000 of this amount related to equipment used in factory operations; the remaining $4,000 related to equipment used in selling and administrative activities.) Manufacturing overhead cost was applied to jobs, $ ? . Goods that had cost $225,000 to manufacture according to their job cost sheets were completed. Sales for the year (all paid in cash) totaled $510,000. The total cost to manufacture these goods according to their job cost sheets was $219,000.

Required: 1. Prepare journal entries to record the transactions for the year.

2. Prepare T-accounts for each inventory account, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the beginning balances in your inventory accounts).

3A. Is Manufacturing Overhead underapplied or overapplied for the year?

3B. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

4. Prepare an income statement for the year. All of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.

Answer 1

1)Journal Entries

a)Raw material a/c...... Dr 166000

To cash 166000

b)work in process a/c Dr 127000 Manufacturing overhead a/c Dr 17000

To Raw material 144000

C)work in process a/c Dr 151000 Manufacturing overhead a/c Dr 269100

Sale commission a/c Dr 21000

Salary expense a/c Dr 42000

To cash 483100

d)manufacturing overhead a/c Dr 13800

Rent expense a/c Dr 4600

To cash 18400

e)manufacturing overhead a/c Dr 15000

To cash 15000

f)Advertisement expense a/c Dr 13000

To cash 13000

g)manufacturing overhead a/c Dr 18000

Depreciation expense a/c Dr 4000

To accumulated depreciation 22000

h)work in process a/c Dr 347300

To manufacturing overhead 347300

Predetermined overhead rate =

estimated total manufacturing overhead cost

____________________________________________

Estimated total amount of allocation base

=103500

__________

45000 Direct labour cost

=230% of direct labour cost

ie $151000 actual direct labour cost×230%

=$ 347300

i) finished goods a/c Dr 225000

To work in process 225000

j)cash a/c Dr 510000

To sales 510000

Cost of goods sold a/c Dr 219000

To finished goods 219000
in Dollary 124000 Balanu 驭600 4toolfin.shtd goed, Balanu ง25000 124000 15 (oo0 34300 Cash oanu bacho Balnu 404100 oishadl Choods 8900 |cost °เ goed Sold Q11000 Balanu Balanu 14100 Cost of Cood Sob Menutechsing Oveshoe 264100 18400 saco Cajh Cash alanu 4800