Question

Management Accounting

Gold Nest Company of Hong Kong is a family-owned enterprise that makes souvenirs for the tourist market. The company sells through an extensive network of trading companies that receive commissions on their sales. Transactions occur in Hong Kong dollars ($). The company uses a job-order costing system in which overhead is applied to jobs on the basis of direct labour cost. It budgeted $330,000 of manufacturing overhead and estimated direct labour cost to be $200,000 in total this fiscal year. On July 1, the start of the company's fiscal year, inventory account balances were as follows: $25,000 Raw Materials Work in Process $10,000 $40,000 During the year, the following transactions were completed: Finished Goods a. Raw materials were purchased on account: $275,000. b. Raw materials were requisitioned for use in production: $280,000 (materials costing $220,000 were chargeable directly to jobs; the remaining materials were indirect). c. Costs for employee services were incurred as follows: Direct labour $180,000 $ 72,000 $ 63,000 $ 90,000 Indirect labour Sales commissions Administrative salaries d. Rent during the year: $75,000 ($60,000 of this amount related to factory operations, and the remainder related to administrative activities). e. Utility costs were incurred in the factory: $57,000. f. Advertising costs were incurred: $14,000. g. Depreciation was recorded on equipment: $100,000 ($88,000 of this amount was on equipment used in factory operations; the remaining $12,000 was on equipment used in selling and administrative activities). h. Manufacturing overhead cost was applied to jobs: $_? i. Goods that had cost $675,000 to manufacture according to their job cost sheets were completed. j. Sales (all on account) to customers during the year totalled $1,250,000. These goods cost $700,000 to manufacture according to their job cost sheets. Required: 1. Prepare journal entries to record the transactions for the year or T-accounts (your choice) for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don't forget to enter

I'd be grateful if someone could show how to approach this management accounting problem. Thanks in advance.

Answer 1

1	Journal entries:
	Ref.	Account titles and explanation					Debit	Credit
	a	Raw materials					275000
		Accounts payable						275000
		(Materials purchased on account)
	b.	Work in process					220000
		Manufacturing overhead				(Plug)	60000
		Raw materials						280000
		(Materials used)
	c.	Work in process					180000
		Manufacturing overhead					72000
		Sales commissions					63000
		Administrative salaries					90000
		Salaries and wages payable						405000
		(Employee service cost incurred)
	d.	Manufacturing overhead					60000
		Rent expense				(Plug)	15000
		Cash						75000
		(Rent paid)
	e.	Manufacturing overhead					57000
		Utility payable						57000
		(Utility costs incurred)
	f.	Advertising expense					14000
		Advertising payable						14000
		(Advertising cost incurred)
	g.	Manufacturing overhead					88000
		Depreciation expense					12000
		Accumulated depreciation						100000
		(Depreciation recorded)
	h.	Work in process				(Note:1)	297000
		Manufacturing overhead						297000
		(Manufacturing overhead applied)
	i.	Finished goods					675000
		Work in process						675000
		(Goods completed)
	j.	Accounts receivable					1250000
		Sales revenue						1250000
		(Sales on account)
		Cost of goods sold					700000
		Finished goods						700000
		(Cost of goods sold recorded)
	Note:1
	Predetermined overhead rate=Budgeted manufacturing overhead/Estimated direct labor cost=330000/200000=$ 1.65 per direct labor cost
	Manufacturing overhead applied=Predetermined overhead rate*Direct labor cost=1.65*180000=$ 297000
	T-accounts:
		Raw materials					Work in process
	Ref.	Debit	Ref.	Credit		Ref.	Debit	Ref.	Credit
	Bal.	25000	b.	280000		Bal.	10000	i.	675000
	a.	275000				b.	220000
		300000		280000		c.	180000
	Bal.	20000				h.	297000
							707000		675000
						Bal.	32000
		Finished goods					Manufacturing overhead
	Ref.	Debit	Ref.	Credit		Ref.	Debit	Ref.	Credit
	Bal.	40000	j.	700000		b.	60000	h.	297000
	i.	675000				c.	72000
		715000		700000		d.	60000
	Bal.	15000				e.	57000
						g.	88000
							337000		297000
						Bal.	40000