Question

Managerial accounting:

Here is the prompt, with the questions at the bottom

Problem 3-16 Comprehensive Problem (LO3-1, LO3-2, LO3-4) 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: $10,300 Raw materials Work in process Finished goods $ 4,400 $ 9,000 During the year, the following transactions were completed: a. Raw materials purchased on account, $ 166,000. b. Raw materials used in production, $140,000 (materials costing $124,000 were charged directly to jobs; the remaining materials were indirect). c. Costs for employee services were incurred as follows: Direct labor $156,000 Indirect labor $283,400 Sales commissions $ 29,000 Administrative salaries $ 49,000 d. Rent for the year was $18,100 ($13,700 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Utility costs incurred in the factory, $15,000. f. Advertising costs incurred, $13,000. g. Depreciation recorded on equipment, $20,000. ($16,000 of this amount related to equipment used in factory operations, the remaining $4,000 related to equipment used in selling and administrative activities.) h. 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 $505,000. The total cost to manufacture these goods according to their job cost sheets was $218,000. 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.

Answer 1

	predetermined overhead rate =			103500/45000
				230%
	Accounting titles & Explanations					debit	Credit
a)	Raw materials inventory					166,000
	cash						166,000
b)	work in process inventory					124,000
	Factory overhead					16,000
	Raw materials inventory						140,000
c)	Work in process inventory					156,000
	Factory overhead					283,400
	Sales commission expense					29,000
	Salaries expense					49,000
	cash						517,400
d)	Factory overhead					13,700
	Rent expense					4,400
	cash						18,100
e)	Factory overhead					15,000
	cash						15,000
f)	Advertising expense					13,000
	cash						13,000
g)	Factory overhead					16,000
	Depreciation expense					4,000
	Accumulated depreciation						20,000
h)	work in process inventory					358800
	Factory overhead		(156000*230%)				358800
i)	finished goods inventory					227,000
	work in process inventory						227,000
j)	Cash					505,000
	Sales revenue						505,000
	cost of goods sold					218,000
	finished goods inventory						218,000
	T-Accounts
	Raw materials				Work in process
Bal	10,300				Bal	4,400
a)	166,000	140,000	b)		b)	124,000	227,000	i)
					c)	156,000
Bal	36,300				h)	358800
					Bal	416,200
					Manufacturing overhead
	Finished goods				beg.bal	0
Bal	9,000				b)	16,000	358800	h)
i)	227,000	218,000			c)	283,400
					d)	13,700
Bal	18,000				e)	15,000
					g)	16,000
							14,700	Bal
	cost of goods sold
Beg.bal	0
j)	218,000
3a)	Manufacturing overhead is over applied
3B)	Journal entry
	Account titles & Explanations					Debit	Credit
	Factory overhead					14,700
	Cost of goods sold						14,700
4)		Income Statement
	Sales						505,000
	less : cost of goods sold			(218000-14700)			203,300
	Gross margin						301,700
	less:Selling & administrative expense
	Sales comission					29,000
	Administrative salaries					49,000
	Rent exepense					4,400
	Advertising expense					13,000
	Depreciation expense					4,000	99,400
	Net operating income						202,300