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 $67,500 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 $ 10,800 $ 4,000 $ 8,800 During the year, the following transactions were completed: a. Raw materials purchased on account, $ 164,000. b. Raw materials used in production, $145,000 ( materials costing $127,000 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 $ 178,000 $ 195,200 $ 25,000 $ 45,000 d. Rent for the year was $18,900 ($13,900 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Utility costs incurred in the factory, $10,000. f. Advertising costs incurred, $11,000. g. Depreciation recorded on equipment, $22,000. ($15,000 of this amount related to equipment used in factory operations, the remaining $7,000 related to equipment used in selling and administrative activities.) h. Record the manufacturing overhead cost applied to jobs. i. Goods that had cost $227,000 to manufacture according to their job cost sheets were completed. j. Sales for the year (all paid in cash) totaled $507,000. The total cost to manufacture these goods according to their job cost sheets was $216,000.

Answer 1

Gold Nest Company Requirement 1 Journal Enteries Event Particulars Raw Materials a/c To Cash Dr. Debit in $ Credit in $ 164000 164000 b. Work in Process a/c Dr. Manufacturing Overhead a/c Dr. To Raw Materials 127000 18000 145000 Work in Process a/c Dr. Manufacturing Overhead a/c Dr. Sales Commissions Expense a/c Dr. Salaries Expense a/c Dr. To Cash 178000 195200 25000 45000 443200 d. Manufacturing Overhead a/c Rent Expense a/c To Cash Dr. Dr. 13900 5000 18900 e. Dr. 10000 Manufacturing Overhead a/c To Cash 10000 f. Dr. 11000 Advertising Expense a/c To Cash 11000 g. Manufacturing Overhead a/c Dr. Depreciation Expense a/c Dr. To Accumulated Depreciation 15000 7000 22000 h. 267000 Work in Process a/c Dr. To Manufacturing Overhead 267000

Predetermined overhead = Estimated total manufacturing overhead cost/Estimated total amount of allocation base = 67,500/45,000 = 1.50 or 150% of direct labor cost $178,000 x 1.50 = $ 267,000 Dr. 227000 Finished Goods a/c To Work in Process 227000 j. Dr. 507000 Cash a/c To Sales 507000 Dr. 216000 Cost of goods sold a/c To Finished Goods 216000 Requirement 3b Journal Enteries Event Particulars Manufactuing Overhead a/c To Cost of goods sold Debit in $ Credit in $ Dr. 14900 14900

Requirement 2 145000 Beg. Bal. a. Raw Materials 10800 164000 End Bal. 174800 29800 174800 227000 Beg. Bal. b. C. h. Work In Process 4000 i. 127000 178000 267000 End Bal. 576000 349000 576000 Beg. Bal. Finished Goods 8800 227000 End Bal. 235800 216000 19800 235800 Manufacturing Overhead 18000 h. 267000 195200 13900 10000 15000 End Bal. 14900 267000 267000 Cost of Goods Sold 216000 Requirement 3a Manufacturing overhead is Overapplied Requirement 4 507000 -216000 291000 Income Statement For the period ending... Sales Cost of goods sold Gross Profit Selling and admin expense: Advertising Expense Depreciation Expense Sales Commission Administrative Salaries Rent Expense Net Operating Income 11000 7000 25000 45000 5000 93000 198000