Question

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 $76,500 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: Raw materials Work in process Finished goods $10,300 $ 4,000 $ 8.300 During the year, the following transactions were completed: a. Raw materials purchased on account. $ 162,000. b. Raw materials used in production, $147,000 (materials costing $123,000 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 $ 172,000 $ 210, 700 $ 27,000 $ 46,000 d. Rent for the year was $18,300 ($13.500 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. f. Advertising costs incurred. $14,000. 9. 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 opplied to jobs. L Goods that had cost $226,000 to manufacture according to their job cost sheets were completed. 1. Sales for the year (all paid in cash) totaled $515,000. The total cost to manufacture these goods according to their job cost sheets was $218,000. Required:

Answer 1

1) Predetermined overhead rate= Estimated total manufacturing overhead/Estimated direct labor

= $76500/45000= 170% of direct labor

No	Transaction	General Journal	Debit	Credit
1.	a.	Raw materials	$162000
		Accounts payable		$162000
		(To record raw materials purchased on account)
2.	b.	Work in process	$123000
		Manufacturing overhead (147000-123000)	$24000
		Raw materials		$147000
		(To record raw materials used in production)
3.	c.	Work in process	$172000
		Manufacturing overhead	$210700
		Sales commissions expense	$27000
		Administrative salaries	$46000
		Cash		$455700
		(To record cost for employee services incurred)
4.	d.	Manufacturing overhead	$13500
		Rent expense (18300-13500)	$4800
		Cash		$18300
		(To record rent)
5.	e.	Manufacturing overhead	$13000
		Cash		$13000
		(To record utility costs incurred)
6.	f.	Advertising expense	$14000
		Cash		$14000
		(To record advertising expense incurred)
7.	g.	Manufacturing overhead	$17000
		Depreciation expense	$7000
		Accumulated depreciation		$24000
		(To record depreciation expense)
8.	h.	Work in process ($172000*170%)	$292400
		Manufacturing overhead		$292400
		(To record manufacturing overhead applied)
9.	i.	Finished goods	$226000
		Work in process		$226000
		(To record jobs transferred to finished goods)
10.	j.	Cash	$515000
		Sales		$515000
		(To record sales)
		Cost of goods sold	$218000
		Finished goods		$218000
		(To record cost of goods sold)

2)

Raw materials					Work in process
Bal.	$10300	(b)	147000		Bal.	$4000	(i)	226000
(a)	162000				(b)	123000
					(c)	172000
Bal.	$25300				(h)	292400
Finished goods					Bal.	$365400
Bal.	$8300	(j)	218000
i.	226000				Manufacturing overhead
					(b)	24000	(h)	292400
Bal.	$16300				(c)	210700
					(d)	13500
Cost of goods sold					(e)	13000
(j)	218000				(g)	17000
					Bal.			14200

3-A) Under or overapplied overhead= Manufacturing overhead applied-Actual manufacturing overhead

= $292400-(24000+210700+13500+13000+17000)= $14200 overapplied

b)

No.	Transaction	General Journal	Debit	Credit
1.	a.	Manufacturing overhead	$14200
		Cost of goods sold		$14200
		(To record overhead applied adjusted to cost of goods sold)

4)

Gold Nest Company
Income Statement
Sales revenue		$515000
Less: Cost of goods sold (218000-14200)		-203800
Gross profit		311200
Less: Selling and administrative expenses
Sales commissions expense	27000
Administrative salaries	46000
Rent expense	4800
Advertising expense	14000
Depreciation expense	7000
Total selling and administrative expenses		-98800
Net operating income		$212400