Question

Gold Nest Company of Guandong, China, is a family owned enterprise that makes birdcages for the South China market. The compar 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 predetermine overhead rate is based on a cost formula that estimated $75,000 of manufacturing overhead for an estimated activity level of $50,00 direct labor dollars. At the beginning of the year, the inventory balances were as follows: Raw materials Work in process Finished goods $11,000 $ 1.900 $ 8,400 During the year, the following transactions were completed: a. Raw materials purchased on account, $ 166,000 b. Raw materials used in production. $147,000 (materials costing $129.000 were charged directly to jobs, the remaining materials wer indirect) c. Costs for employee services were incurred as follows: Direct labor Indirect labor Sales commissions Administrative salaries $ 150,000 $146,200 $24.000 $ 47,000 d. Rent for the year was $18,000 ($13,500 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Utility costs incurred in the factory, $18,000 f. Advertising costs incurred, $10,000. g. Depreciation recorded on equipment, $23,000. ($16,000 of this amount related to equipment used in factory operations, the remaining $7,000 related to equipment used in selling and administrative activities.) h. Record the manufacturing overhead cost applied to jobs. 1. Goods that had cost $229,000 to manufacture according to their job cost sheets were completed. Sales for the year (all paid in cash) totaled $501,000. 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 (dont forget to enter the beginning balances in your inventory accounts)

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Answer 1

Requirement 1 Journal Transaction Particulars а Raw Materials Accounts Payable (Raw material purchased on account) (in $) Debit 1,66,000 (in $) Credit 1,66,000 1,29,000 18,000 Work in Process Manufacturing OH (147000-129000) Raw Materials (Material used) 1,47,000 Work in Process Manufacturing OH Selling and Administrative OH (24000+47000) Salaries and Wages (Costs for employees services apportioned) 1,50,000 1,46,200 71,000 3,67,200 13,500 4,500 Manufacturing OH Selling and Administrative OH (18000-13500) Rent (Rent apportioned) 18,000 18,000 Manufacturing OH Utility costs (Utility costs incurred) 18,000 10,000 Selling and Administrative OH Advertising costs (Advertising costs incurred) 10,000

16,000 7,000 Manufacturing OH Selling and Administrative OH Depreciation (Depreciation apportioned) 23,000 2,25,000 Work in Process (150000*1.50) Manufacturing OH (Manufacturing OH applied) -see note below 2,25,000 2,29,000 Finished Goods Work in Process (Cost of Goods completed) 2,29,000 2,19,000 Cost of Goods sold Finished Goods (Cost of Goods sold) 2,19,000 5,01,000 Cash Sales (Cash received from sales) 5,01,000 Note Estimated Manufacturing OH Estimated Direct labor cost Predetermined Manufacturing OH rate (75000/50000) 75,000 50,000 1.50

Requirement 2 Dr Particulars Beginning Balance Accounts Payable Raw Materials in $ Particulars 11,000 Work in Process 1,66,000 Manufacturing OH in $ 1,29,000 18,000 Ending Balance 1,77,000 Total 30,000 1,77,000 Total cr in $ 2,29,000 Dr Particulars Beginning Balance Raw Materials Salaries and Wages Manufacturing OH (150000*1.50) Work-in-Process in $ Particulars 4,900 Finished goods 1,29,000 1,50,000 2,25,000 Ending Balance 5,08,900 Total 2,79,900 5,08,900 Total Dr Particulars Beginning Balance Work in Process Finished goods in $ Particulars 8,400 Cost of goods sold 2,29,000 Cr in $ 2,19,000 Ending Balance 2,37,400 Total 18,400 2,37,400 Total

Cr in $ 2,25,000 Dr Particulars Raw Materials Salaries and Wages Rent Utility costs Depreciation Cost of Goods sold (Over-Applied) Total Manufacturing OH Control in $ Particulars 18,000 Work in Process 1,46,200 |(150000*1.50) 13,500 18,000 16,000 13,300 2,25,000 Total 2,25,000 Cr Particulars Finished goods Cost of goods sold in $ Particulars 2,19,000 Manufacturing OH-Over applied in $ 13,300 Costing Profit and Loss 2,19,000 Total 2,05,700 2,19,000 Total

Requirement 3A The manufacturing OH is over-applied for the year by $13,300. (225000-211700) Requirement 3B (in $) Debit 13,300 (in $) Credit Journal Transaction Particulars Manufacturing OH Cost of Goods sold (Over applied Manufacturing OH adjusted) ars 13,300 Requirement 4 $ $ Income Statement Sales (-) Cost of Goods sold Gross Profit (-) Selling and Administrative OH (71000+4500+10000+7000) Net Income for the year 5,01,000 -2,05,700 2,95,300 -92,500 $ $ 2,02,800