Question

Problem 3-16 Comprehensive Problem [LO3-1, LO3-2, LO3-4]

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	$	10,400
Work in process	$	4,100
Finished goods	$	8,100

During the year, the following transactions were completed:

1. Raw materials purchased for cash, $ 170,000.
2. Raw materials used in production, $148,000 (materials costing $122,000 were charged directly to jobs; the remaining materials were indirect).
3. Cash paid to employees as follows:

Direct labor	$	162,000
Indirect labor	$	289,400
Sales commissions	$	23,000
Administrative salaries	$	45,000

4. Cash paid for rent during the year was $18,400 ($13,100 of this amount related to factory operations, and the remainder related to selling and administrative activities).
5. Cash paid for utility costs in the factory, $14,000.
6. Cash paid for advertising, $13,000.
7. Depreciation recorded on equipment, $21,000. ($17,000 of this amount related to equipment used in factory operations; the remaining $4,000 related to equipment used in selling and administrative activities.)
8. Manufacturing overhead cost was applied to jobs, $ ? .
9. Goods that had cost $230,000 to manufacture according to their job cost sheets were completed.
10. Sales for the year (all paid in cash) totaled $502,000. The total cost to manufacture these goods according to their job cost sheets was $216,000.

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.

Garrison 16e Rechecks 2017-10-10

No	Transaction	General Journal	Debit	Credit
1	a.	Raw materials	170,000
		Cash		170,000
2	b.	Work in process	122,000
		Manufacturing overhead	23,000
		Raw materials		145,000
3	c.	Work in process	162,000
		Manufacturing overhead	289,400
		Sales commisions expense	68,000
		Cash		519,400
4	d.	Manufacturing overhead	13,100
		Sales commisions expense	5,300
		Cash		18,400
5	e.	Manufacturing overhead	14,000
		Cash		14,000
6	f.	Sales commisions expense	13,000
		Cash		13,000
7	g.	Manufacturing overhead	17,000
		Sales commisions expense	4,000
		Accumulated depreciation		21,000
8	h.	Work in process	372,600
		Manufacturing overhead		372,600
9	i.	Finished goods	230,000
		Work in process		230,000
10	j(1).	Cash	502,000
		Sales		502,000
11	j(2).	Cost of goods sold	216,000
		Finished goods		216,000

• Req 1

• 	Raw Materials Work in Process Beg. Bal. Beg. Bal.

Answer 1

T-accounts can be prepared using journal entries as follows:

Raw Materials Inventory
Balance	$10,400
Purchase	$170,000	Requisitions	$170,000
Ending Balance	$10,400
Work in Process Inventory
Balance	$4,100
Direct Materials	$122,000	Finished Goods	$230,000
Direct Labor	$162,000
Overhead	$372,600
Ending Balance	$430,700
Finished Goods
Balance	$8,100
Goods Finished	$230,000	Cost of goods sold	$216,000
Ending Balance	$22,100
Manufacturing Overhead
Indirect Materials	23000	Manufacturing Overhead Applied	372600
Indirect Labor	289400
Factory Rent	13100
Factory Utilities	14000
Factory Depreciation	17000
End Bal			16100
Cost of Goods sold
Balance	$0
Cost of goods sold	$216,000	Manufacturing Overhead overapplied	$16,100
Ending Balance	$199,900
3A)
Actual Manufacturing Overhead	$356,500
Manufacturing Overhead applied	$372,600
Since manufacturing overhead applied is higher than the actual overhead,
therefore the manufacturing overhead is overapplied.
3B)
Journal entry to adjust the manufacturing overhead will be as follows:
Account	Debit	Credit
Manufacturing Overhead	$16,100
Cost of Goods Sold		$16,100