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 $105,000 of manufacturing overhead for an estimated activity level of $50,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows:

Raw materials	$	10,300
Work in process	$	4,000
Finished goods	$	8,400

During the year, the following transactions were completed:

a. Raw materials purchased on account, $ 167,000.

b. Raw materials used in production, $150,000 (materials costing $129,000 were charged directly to jobs; the remaining materials were indirect).

c. Costs for employee services were incurred as follows:

Direct labor	$	161,000
Indirect labor	$	255,900
Sales commissions	$	24,000
Administrative salaries	$	47,000

d. Rent for the year was $19,000 ($13,300 of this amount related to factory operations, and the remainder related to selling and administrative activities).

e. Utility costs incurred in the factory, $16,000.

f. Advertising costs incurred, $14,000.

g. 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.)

h. Manufacturing overhead cost was applied to jobs, $ ? .

i. Goods that had cost $229,000 to manufacture according to their job cost sheets were completed.

j. Sales for the year (all paid in cash) totaled $511,000. 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.

Reg 1 Req 2 Req 3A Req 3B Req4 Prepare journal entries to record the transactions for the year. (If no entry is required for a transaction/event, select "No journal entry required in the first account field. Do not round intermediate calculations.) View transaction list View journal entry worksheet No Transaction General Journal Credit Debit 167,000 Raw materials Cash 167,000 2b. Work in process Manufacturing overhead | Raw materials 129,000 21,000 150,000 Work in process Manufacturing overhead Sales commisions expense Salaries and wages payable Cash 161,000 255,900 24,000 47,000 487,900 4 d. Manufacturing overhead Rent expense Cash 13,300 5,700 19.000 5 e. 16,000 Manufacturing overhead Cash 16,000 + 6 1 f. 14,000 Advertising expense Cash 14,000 7 g. Manufacturing overhead Depreciation expense Accumulated depreciation 17,000 4,000 21.000 8 h. 338,100 Work in process Manufacturing overhead 338,100 9 i 229,000 Finished goods Work in process 229,000 7 10 (1) 511,000 Sales 511,000 11 j(2) 216,000 Cost of goods sold Finished goods 216,000 < Real Req 2 >

**I have some answers filled in but they may not be right.** Primarily concerned about questions 2-4.**

Answer 1

Beg Bal. Raw Materials 10,300 167,000 150,000 Beg Bal. Finished Goods Inventory 8,400 229,000 216,000 (2) End Bal. 27,300 End Bal. 21,400 Cost of Goods sold Beg Bal. Beg Bal. |(2) 216,000 Work in Process Inventory 4,000 129,000 229,000 161,000 338,100 403,100 End Bal. 216,000 End Bal. Manufacturing Overhead Beg Bal. 338,100 h. Oo oo 21,000 255,900 13,300 16,000 17,000 End Bal. 14,900

3A.) Total Manufacturing Overhead incurred Indirect Material Indirect Labor Factory rent Factory Utilities cost Factory equipment depreciation Total Manufacturing Overhead incurred Less: Manufacturing overhead applied Under/Over) applied Manufacturing overhead 21,000 255,900 13,300 16,000 17,000 323,200 (338,100) (14,900) Manufacturing Overhead is Overapplied General Journal Debit Credit 14,900 Manufacturing Overhead Cost of goods sold (to charge overapplied manufacturing overhead to cost of goods sold) 14,900

GOLD NEST COMPANY Income Statement $ 511,000 (201,100) 309,900 $ Sales Cost of goods sold (216,000 - 14,900) Gross Profit Less: Selling and Administrative expense Sales Commission Administrative salaries Rent expense Advertising expense Depreciation expense Net Income 24,000 47,000 5,700 14,000 4,000 (94,700) 215,200