Question

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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 $95,000 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 materiala Work in proces Finished goods $10,800 $ 5,000 $8.400 During the year, the following transactions were completed: a. Raw materials purchased on account, $ 162,000. b. Raw materials used in production, $144,000 (materials costing $120,000 were charged directly to jobs, the remaining materials were indirect). c. Costs for employee services were incurred as follows: Direct Labor Indirect labor Sales Comissions Administrative salaries $ 163,000 $ 228,200 $ 22,000 $ 49,000 d. Rent for the year was $18,000 ($13,200 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Utility costs incurred in the factory, $13,000. 1. Advertising costs incurred, $14,000. g. Depreciation recorded on equipment, $24,000. ($17,000 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. 1. Goods that had cost $229,000 to manufacture according to their job cost sheets were completed Sales for the year (all paid in cash) totaled $498,000. The total cost to manufacture these goods according to their job cost sheets was $218,000

Answer 1

ANS :-

Transaction	Description	Debit	Credit
a.	Raw materials	162000
	Cash		162000
b.	Work in process	120000
	Manufacturing overhead	24000
	Raw materials		144000
c.	Work in process	163000
	Manufacturing overhead	228200
	Sales commission expense	22000
	Salaries expense	49000
	Cash		462200
d.	Manufacturing overhead	13200
	Rent expense	4800
	Cash		18000
e.	Manufacturing overhead	13000
	Cash		13000
f.	Advertising expense	14000
	Cash		14000
g.	Manufacturing overhead	17000
	Depreciation expense	7000
	Accumulated depreciation		24000
h.	Work in process	309700	(95000/50000)*163000
	Manufacturing overhead		309700
i.	Finished goods	229000
	Work in process		229000
j(1).	Cash	498000
	Sales		498000
j(2).
	Cost of goods	218000
	Finished goods		218000

2

Raw material
Beg. Bal.	10800	shared
	162000	172800	b
Work in progress
Beg. Bal.	5000	229000	i
b	120000
c	228200	229000	i
End. Bal.	124200
Finished Goods
Beg. Bal.	5000	218000	j
i	229000
End. Bal.	16000
Manufacturing Overhead
b.	24000	309700	H
c.	228200
d.	13200
e.	13000
g.	17000
End. Bal.		14300
Cost of goods sold
j	218000
End. Bal.	218000

3a)	Manufacturing overhead is over applied
3B)	Journal entry
	Account titles & Explanations					Debit	Credit
	Factory overhead					14,300
	Cost of goods sold						14,300

4)		Income Statement
	Sales						498000
	less : cost of goods sold			(218000-14300)			203700
	Gross margin						294300
	less:Selling & administrative expense
	Sales commission					22,000
	Administrative salaries					49,000
	Rent expense					4800
	Advertising expense					14,000
	Depreciation expense					7,000	96,800
	Net operating income						197500