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 $94,500 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 Work in process Finished goods $ 10,600 $ 4,900 $ 8,800 During the year, the following transactions were completed: a. Raw materials purchased on account, $ 167,000. b. Raw materials used in production, $142,000 (materials costing $128,000 were charged directly to jobs; the remaining materials were indirect). C. Costs for employee services were incurred as follows: Direct labor Indirect labor Sales commissions Administrative salaries $ 159,000 $ 261,700 $ 26,000 $ 49,000

Answer 1

Gold Nest Company
S.No.	General,Journal	Debit	Credit
a)	Raw Material	$    1,67,000.00
	To Cash		$                              1,67,000.00
	(Being amount of Raw Material purchased )
b)	Work in Process	$    1,28,000.00
	Manufacturing Overhead	$       14,000.00
	To Raw Materials		$                              1,42,000.00
	(Being amount of Raw material requisitioned for use in production)
c)	Work in Process	$    1,59,000.00
	Manufacturing Overhead	$    2,61,700.00
	Sales Commission	$       26,000.00
	Salaries Expense	$       49,000.00
	To Cash		$                              4,95,700.00
	(Being amount of cost were incurred for employee services)
d)	Manufacturing Overhead	$       13,100.00
	Rent Expense	$          5,300.00
	To Cash		$                                  18,400.00
	(Being amount of Rent Expense)
e)	Manufacturing Overhead	$       14,000.00
	To Cash		$                                  14,000.00
	(Being amount of Utility cost in the Factory)
f)	Advertisement Expense	$       10,000.00
	To Accounts Payable		$                                  10,000.00
	(Being amount of Advertisement Expenses)
g)	Manufacturing Overhead	$       17,000.00
	Depreciation Expense	$          6,000.00
	To Accumulated Depreciation		$                                  23,000.00
	Being amount of Depreciation Expense)
h)	Work in Process($159000*210%)	$    3,33,900.00
	To Manufacturing Overhead		$                              3,33,900.00
	(Being amount of manufacturing overhead applied)
i)	Finished Goods	$    2,25,000.00
	To Work in Process		$                              2,25,000.00
	(Being amount of Work in Process transferred to Finished Goods)
j)	Cash	$    5,12,000.00
	To Sales		$                              5,12,000.00
	(Being amount of Sales )
	Cost of goods sold	$    2,17,000.00
	To Finished Goods		$                              2,17,000.00
	(Being amount of finished goods transferred to Cost of goods sold)
(*)	Predetermined Overhead rate=Estimated total amount of Factory Overhead/Estimated total amount of allocation base
	Estimated Total Amount of Factory Overhead=(A)	$       94,500.00
	Direct Labor cost	$       45,000.00
	Predetermined Overhead Rate(C )=(A)/(B)	210%
	T-Accounts
	Raw Material
	Particular	Amount	Particular	Amount
	To Balance b/d	$       10,600.00	By Work in Process	$    1,28,000.00
	To Accounts Payable	$    1,67,000.00	By Manufacturing Overhead	$       14,000.00
			By Balance C/d	$       35,600.00
	Total	$    1,77,600.00	Total	$    1,77,600.00
	Manufacturing Overhead
	Particular	Amount	Particular	Amount
	To Raw Material	$       14,000.00	By Work in Process	$    3,33,900.00
	To Salaries and Wages Expense	$    2,61,700.00
	To Cash	$       13,100.00
	To Cash	$       14,000.00
	To Accumulated Depreciation	$       17,000.00
	To Balance C/d	$       14,100.00
	Total	$    3,33,900.00	Total	$    3,33,900.00
	Work In Process
	Particular	Amount	Particular	Amount
	To Balance B/d	$          4,900.00	By Finished Goods	$    2,25,000.00
	To Raw Material	$    1,28,000.00	By Balance C/d	$    4,00,800.00
	To Salaries and Wages	$    1,59,000.00
	To Manufacturing Overhead	$    3,33,900.00
	Total	$    6,25,800.00	Total	$    6,25,800.00
	Finished Goods
	Particular	Amount	Particular	Amount
	To Balance B/d	$          8,800.00	By Cost of goods sold	$    2,17,000.00
	To Work in Process	$    2,25,000.00	By Balance C/d	$       16,800.00
	Total	$    2,33,800.00	Total	$    2,33,800.00
	Sales Account
	Particular	Amount	Particular	Amount
	To Balance C/d	$    5,12,000.00	By Cash	$    5,12,000.00
	Total	$    5,12,000.00	Total	$    5,12,000.00
	Cost of goods sold
	Particular	Amount	Particular	Amount
	To Finished Goods	$    2,17,000.00	By Balance C/d	$    2,17,000.00
	Total	$    2,17,000.00	Total	$    2,17,000.00
	Manufacturing Overhead is under applied by $14100 charged to cost of goods sold
	General,Journal	Debit	Credit
	Manufacturing Overhead	$       14,100.00
	To Cost of goods sold		$                                  14,100.00
4)	Gold Nest Company
	Income Statement
	Sales Revenue=(A)		$                              5,12,000.00
	Less: Cost of goods sold=(B)=($217000-$14100)		$                              2,02,900.00
	Gross Profit=(C )=(A)-(B)		$                              3,09,100.00
	Selling and Administrative Expense
	Sales Commission	$       26,000.00
	Administrative Salaries	$       49,000.00
	Rent Expense	$          5,300.00
	Advertising cost	$       10,000.00
	Depreciation	$          6,000.00
	Total selling & Administrative Expenses=(D )		$                                  96,300.00
	Net Income=(C )-(D )		$                              2,12,800.00