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 $92,000 of manufacturing overhead for an estimated activity level of $40,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows: Raw materials Work in process Finished goods $ 10,400 $ 4,600 $ 8,400 During the year, the following transactions were completed: a. Raw materials purchased on account, $ 165,000. b. Raw materials used in production, $142,000 (materials costing $126,000 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 5 169,000 $ 316,500 $ 22,000 $ 41,000

All journal entries have been recorded correctly. However on journal C the credit info is incorrect. It is either cash nor accounts payable. what would the credit entry be?

Given this info, is the manufacturing overhead underapplied or overapplied for the year?

record the above journal entry

prepare an income statement

Answer 1

1) journal entries

S.no	account title and explanation	debit ($)	credit ($)
1	Raw material inventory	165000
	Cash		165000
2	work in process	126000
	Manufacturing overhead	16000
	RAW MATERIAL INVENTORY		142000
3	work in process	169000
	Manufacturing overhead	316900
	Sales commission	22000
	Administrative salaries	41000
	Cash		548900
4	manufacturing overhead	13500
	Rental expenses	5000
	Cash		18500
5	manufacturing overhead	13000
	Cash		13000
6	advertising	13000
	Cash		13000
7	manufacturing overhead	16000
	Depreciation	4000
	Accumulated depreciation		20000
8	work in process (note below)	388700
	Manufacturing overhead		388700
9	finished goods	227000
	Work in process		227000
10	cash	511000
	Sales		511000
11	cost of goods sold	217000
	Finished goods		217000

T accounts

​​​​​​. RAW MATERIAL INVENTORY

Beginning balance	10900	work in process	142000
Cash	165000
		Balance	33900

work in process

Beginning balance	4600	finished goods	227000
Raw material inventory	126000
Cash	169000
Manufacturing overhead	388700
		Balance	461300

  manufacturing overhead

Raw material inventory	16000	work in process	388700
Cash	316900
Cash	13500
Cash	13000
Accumulated depreciation	16000
Balance (overapplied overhead)	13300

finished goods

Beginning balance	8400	cost of goods sold	217000
Work in process	227000
		Balance	18400

  cost of goods sold

Finished goods	217000	manufacturing overhead (overapplied)	13300
		Balance	203700

3a) actual overhead applied - applied overhead

   375400- 388700 = 13300

3b) manufacturing overhead 13300

   Cost of goods sold. 13300

4). Income statement

Particular	amount($)	amount($)
Sales		511000
(-) cost of goods sold		(203700)
Gross margin		307300
Less expenses
Sales commission	22000
Administrative salaries	41000
Rent	5000
Advertising	13000
Depreciation	4000	(85000)
NET OPERATING INCOME		222300

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