Question

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 ovechead 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 $10.900 $ 4.800 $ 8,200 During the year, the following transactions were completed: a. Raw materials purchased on account, $164,000. b. Raw materials used in production, $148,000 (materials costing $130,000 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 $ 158,000 $ 290,500 $ 22,000 $ 40.000 d. Rent for the year was $18,100 ($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, $10,000, 1. Advertising costs incurred, $11,000. honrariation recorded an a mant 2200 11 of the amount relaterte annmantot in factarnorating the

Answer 1

	predetermined overhead rate =			103500/45000
				230%
	Accounting titles & Explanations					debit	Credit
a)	Raw materials inventory					164,000
	cash						164,000
b)	work in process inventory					130,000
	Factory overhead					18,000
	Raw materials inventory						148,000
c)	Work in process inventory					158,000
	Factory overhead					290,500
	Sales commission expense					22,000
	Salaries expense					40,000
	cash						510,500
d)	Factory overhead					13,300
	Rent expense					4,800
	cash						18,100
e)	Factory overhead					10,000
	cash						10,000
f)	Advertising expense					11,000
	cash						11,000
g)	Factory overhead					18,000
	Depreciation expense					4,000
	Accumulated depreciation						22,000
h)	work in process inventory					363400
	Factory overhead		(150,000*230%)				363400
i)	finished goods inventory					226,000
	work in process inventory						226,000
j)	Cash					508,000
	Sales revenue						508,000
	cost of goods sold					219,000
	finished goods inventory						219,000
	T-Accounts
	Raw materials				Work in process
Bal	10,900				Bal	4,800
a)	164,000	148,000	b)		b)	130,000	226,000	i)
					c)	158,000
Bal	26,900				h)	363400
					Bal	430,200
					Manufacturing overhead
	Finished goods				beg.bal	0
Bal	8,200				b)	18,000	363400	h)
i)	226,000	219,000			c)	290,500
					d)	13,300
Bal	15,200				e)	10,000
					g)	18,000
							13,600	Bal
	cost of goods sold
Beg.bal	0
j)	219,000
3a)	Manufacturing overhead is over applied
3B)	Journal entry
	Account titles & Explanations					Debit	Credit
	Factory overhead					13,600
	Cost of goods sold						13,600
4)		Income Statement
	Sales						508,000
	less : cost of goods sold						205,400
	Gross margin						302,600
	less:Selling & administrative expense
	Sales comission					22,000
	Administrative salaries					40,000
	Rent exepense					4,800
	Advertising expense					11,000
	Depreciation expense					4,000	81,800
	Net operating income						220,800