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 Work in process Finished goods $ 10, 700 $ 5,000 $ 8,400 During the year, the following transactions were completed: a. Raw materials purchased on account, $ 165,000. b. Raw materials used in production, $148,000 (materials costing $120,000 were charged directly to jobs; the remaining materials were indirect). c. Costs for employee services were incurred as follows:
  

Answer 1

ANSWER

1. Journal Entries-

S.No.	Accounst titles and Explanation	Debit ($)	Credit ($)
A.	Raw materials	165,000
	Cash		165,000
B.	Work in process	120,000
	Manufacturing overhead	28,000
	Raw materials		148,000
C.	Work in process	171,000
	Manufacturing overhead	309,900
	Sales commissions expense	26,000
	Salaries expense	41,000
	Cash		547,900
D.	Manufacturing overhead	13,900
	Rent expense	4,400
	Cash		18,300
E.	Manufacturing overhead	12,000
	Cash		12,000
F.	Advertising expense	12,000
	Cash		12,000
G.	Manufacturing overhead	16,000
	Depreciation expense	8,000
	Accumulated depreciation		24,000
H.	Work in process*	393,300
	Manufacturing overhead		393,300
I.	Finished goods	227,000
	Work in process		227,000
J.	Cash	506,000
	Sales		506,000
	Cost of goods sold	218,000
	Finished goods		218,000

*H- Predetermined overhead rate = Estimated actual manufacturing overhead cost / Estimated total amount of the allocation base

= $103,500/ 45,000 = 230% of direct labor cost

Actual direct labor cost = $171,000

Manufacturing overhead = $171,000* 230% = $393,300