Question

Star Videos, Inc., produces short musical videos for sale to real outlets. The company's balance sheet accounts as of January 1 are given below. Star Videos, Ine. Balance Sheet January 1 Assets Cash $ 74,600 Accounts receivable 115,400 Inventoriest Raw materials (sim, costumes) $10,000 Videos in process 49,000 Finished videos awaiting sale 88,600 147,600 Prepaid insurance 8,200 Studio and equipment (net) 588,000 Total assets $933, 800 Liabilities and Stockholders' Equity Accounts payable $244,000 Retained earnings 669,800 Total liabilities and $933,800 stockholders' equity Because the videos differ in length and in complexity of production, the company uses a job-order dosting system to determine the cost of each video produced. Studio ( manufacturing) overhead is charged to videos on the basis of camera-hours of activity. The company's predetermined overhead rate for the year ($40 per camera-hour) is based on a cost formula that estimated $280,000 in manufacturing overhead for an estimated allocation base of 7,000 camera- hours. Any underapplied or overapplied overhead is closed to cost of goods sold. The following transactions were recorded for the year: a. Film, costumes, and similar raw materials purchased on account, $210.500 b. Film, costumes, and other raw materials issued to production, $215,500 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect) c. Utility costs incurred (on account in the production studio. $94.800 d. Depreciation recorded on the studio, cameras, and other equipment, $85.200. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration e. Advertising expense incurred on account. 5174,000. Salaries and wages paid in cash as follows: Direct labor (actors and directors) $ 91,200 Indirect labor (carpenters to build sets, costume designers, and so $ 91,500 forth) Adeinistrative salaries $ 108,800 9. Prepaid insurance expired during the year, 57,300 (70% related to production of videos, and 30% related to marketing and administrative activities). Miscellaneous marketing and administrative expenses incurred (on account. $13,550 L Studio (manufacturing) overhead was applied to videos in production. The company recorded 2250 camera hours of activity during the year Videos that cost $518,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to awalt sale and shipment k Sales for the year totaled $426,000 and were all on account The total cost to produce the videos that were sold according to their job cost sheets was 552.710 m. Colections from customers during the year totaled $1076.000. n. Payments to suppliers on account during the vear, $605,000

Answer 1

Star Videos. Inc
Transaction Analysis
For the Month Ended December 31
Transaction		Cash	Accounts Receivable	Raw materials	Videos in Process	Finished Goods	Manufacturing overhead	Prepaid Expense	Studio Equipment (net)	=	Accounts payable	Retained Earnings
	Beginning balances @ 1/1	74,600	115,400	10,000	49,000	88,600	-	8,200	588,000	=	244,000	689,800
a)	Raw material purchases			210,500						=	210,500
b)	Raw material used			(215,500)	183,175		32,325			=
c)	Utility costs						94,800			=	94,800
d)	Depreciation						63,900		(85,200)	=		(21,300)
e)	Advertising									=	174,000	(174,000)
f)	Salaries and wages	(291,500)			91,200		91,500			=		(108,800)
g)	Prepaid Insurance						5,110	(7,300)		=		(2,190)
h)	Miscellaneous Marketing									=	13,550	(13,550)
i)	Applied Overhead				290,000		(290,000)			=
j)	Transfer completed videos to finished goods				(518,000)	518,000				=
k)	Sales	-	1,126,000							=		1,126,000
l)	Transfer finished goods to cost of goods sold					(559,710)				=		(559,710)
m)	Collection from Customers	1,076,000	(1,076,000)
n)	Payment to suppliers	605,000								=	605,000
O)	Over applied Overhead	-	-	-	-	-	2,365	-	-	=	-	2,365
	Ending balances @ 12/31	1,464,100	165,400	5,000	95,375	46,890	-	900	502,800	=	1,341,850	938,615

Working Notes: Calculation of Manufacturing Overhead: Indirect Material (215,500 x 15%) Indirect labor Utility Costs Depreciaiton (85,200 x 3/4) Prepaid Insurance (7,300 x 70%) Total Manufacturing overhead Less: Overhead applied (7,250 hours * $ 32,325 91,500 94,800 63,900 5,110 287,635 40) (290,000) (2,365) Under/Over)applied Overhead

2) Cost of goods manufactured Star Videos Inc. Schedule of Cost of Goods Manufactured For the Year Ended December 31 Direct Materials: Beginning raw material 10,000 Add: Purchase of raw materials 210,500 Total raw materials available 220,500 Less: Ending raw materials inventory 5,000 Raw materials used in production 215,500 Less: Indirect Materials 32,325 Direct Labor Manufacturing overhead applied to work in process Total Manufacturing Costs Add: Beginning videos in process inventory 183,175 91,200 290,000 564,375 49,000 613,375 Less: Ending videos in process inventory Cost of goods manufactured 95,375 518,000

3) Schedule of cost of Goods Sold Star Videos Inc. Schedule of Cost of Goods Sold For the Year Ended December 31 Beginning Finished Goods Inventory Add: cost of goods manufactured Cost of goods available for sale Less: Ending Finished Goods Inventory Unadjusted cost of goods sold Less: Overapplied Overhead Adjusted Cost of goods sold 88,600 518,000 606,600 46,890 559,710 2,365 557,345 4) Income Statement Star Videos Inc. Income Statement For the Year Ended December 31 Sales 1,126,000 Cost of goods sold 557,345 Gross Margin 568,655 Selling and administrative expenses 319,840 Net Operating Income 248,815 Working Notes: Selling and administrative expenses Depreciation expense (85,200 x 1/4) Advertising expense Administrative salaries Insurance expense (7,300 x 30%) Miscellaneous marketing Total 21,300 174,000 108,800 2,190 13,550 319,840