Question

Star Videos, Inc., produces short musical videos for sale to retail outlets. The company’s balance sheet accounts as of January 1 are given below.

 

Star Videos, Inc.
Balance Sheet
January 1
Assets
Cash				$	82,600
Accounts receivable					97,600
Inventories:
Raw materials (film, costumes)	$	42,800
Videos in process		56,600
Finished videos awaiting sale		79,800			179,200
Prepaid insurance					10,050
Studio and equipment (net)					548,000
Total assets				$	917,450
Liabilities and Stockholders’ Equity
Accounts payable				$	188,000
Retained earnings					729,450
Total liabilities and stockholders’ equity				$	917,450

 

Because the videos differ in length and in complexity of production, the company uses a job-order costing system to determine the cost of each video produced. Studio (manufacturing) overhead is charged to videos on the basis of camera-hours of activity. The company’s predetermined overhead rate for the year ($40 per camera-hour) is based on a cost formula that estimated $280,000 in manufacturing overhead for an estimated allocation base of 7,000 camera-hours. Any underapplied or overapplied overhead is closed to cost of goods sold. The following transactions were recorded for the year:

 

Answer 1

Part 1

Star Videos Inc. Transaction Analysis For the Year Ended December 31
	Cash	Accounts receivable	Ra materials	Videos in process	Finished goods	Manufacturing overhead	Prepaid expenses	Studio & equipment (net)	=	Accounts payable	Retained earnings
Beginning balance @1/1	82600	97600	42800	56600	79800		10050	548000		188000	729450
(a) Raw material purchase			221000							221000
(b) Raw materials used			(259000)	220150		38850
(c)Utility costs						81200				81200
(d) Depreciation charges						69900		(93200)			(23300)
(e) Advertising										161000	(161000)
(f)Salaries & wages	(291700)			98200		83500					(110000)
(g) Prepaid insurance						6370	(9100)				(2730)
(h) Miscellaneous marketing										14150	(14150)
(i)Applied overhead				290000		(290000)
(j)Transfer completed videos to finished goods				(580000)	580000
(k)Sales		1100000									1100000
(l)Transfer finished goods to cost of goods sold					(626050)						(626050)
(m) Cash collections from customers	1050000	(1050000)
(n) Payment to suppliers	(529000)									(529000)
(o) Overapplied overhead						10180					10180
Ending balances @ 12/31	311900	147600	4800	84950	33750	0	950	454800		136350	902400

259000*85% = 220150

259000*15% = 38850

93200*3/4 = 69900

93200*1/4 = 23300

9100*30% = 2730

9100*70% = 6370

280000/7000*7250 = 290000

Part 2

Star Videos Inc. Schedule of Cost of Goods Manufactured For the Year Ended December 31
Direct Materials:
Beginning raw materials inventory	42800
Add: purchases of raw materials	221000
Total raw materials available	263800
Deduct: ending raw materials inventory	4800
Raw materials used in production	259000
Deduct: indirect materials included in manufacturing overhead	38850	220150
Direct labor		98200
Manufacturing overhead		279820
overapplied overhead to work in process		10180
Total manufacturing costs		608350
Add: beginning work in process inventory		56600
		664950
Deduct: ending work in process inventory		84950
Cost of goods manufactured		$580000

Part 3

Star Videos Inc. Schedule of Cost of Goods Sold For the Year Ended December 31
Beginning finished videos inventory	79800
Cost of goods manufactured	580000
Cost of goods available for sale	659800
Less: Ending finished videos inventory	33750
Unadjusted cost of goods sold	$626050
Less: Overapplied overhead	10180
Adjusted cost of goods sold	$615870

Part 4

Star Videos Inc. Income Statement For the Year Ended December 31
Sales	1100000
Cost of goods sold	615870
Gross margin	484130
Selling and administrative expenses	311180
Net operating income	$172950