Question

Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1, are given below. $ 82,000 121,000 $ 49,000 22,000 100,000 Supreme Videos, Inc. Balance Sheet January 1 Assets Current assets: Cash Accounts receivable Inventories: Raw materials (film, costumes) Videos in process Finished videos awaiting sale Prepaid insurance Total current assets Studio and equipment Less accumulated depreciation Total assets Liabilities and Stockholders' Equity Accounts payable Capital stock Retained earnings Total liabilities and stockholders' equity 171,000 12,800 386,800 768,000 229,000 539,000 $925,800 $ 128,800 $ 508,000 289,000 797,000 $925,800 Because the videos differ in length and in complexity of production, the company uses a job-order costing 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 is based on a cost formula that estimated $360,000 in manufacturing overhead for an estimated allocation base of 9,000 camera-hours. The following transactions occurred during the year: a. Film, costumes, and similar raw materials purchased on account, $204,000. b. Film, costumes, and other raw materials used in production, $219,000 (75% of this material was considered direct to the videos in production, and the other 25% was considered indirect). c. Utility costs incurred in the production studio, $91,000. d. Depreciation recorded on the studio, cameras, and other equipment, $103,000. Three-fourths of this depreciation related to production of the videos, and the remainder related to equipment used in marketing and administration. e. Advertising expense incurred on account, $149,000. f. Costs for salaries and wages were incurred as follows:

Answer 1

Requirement 1 and 2 Beg.Bal. $ $ Cash 82,000 $ 869,000 $ 519,000 m 326,000 m Beg.Bal. k $ $ Accounts Receivable 121,000 $ 869,000 963,000 End. Bal. $ 106,000 End. Bal. $ 215,000 Beg.Bal. Raw Materials 49,000 $ 164,250 b (219000*75%) 204,000 $ 54,750 b (219000*25%) Beg.Bal. $ $ $ Prepaid Insurance 12,800 $ 6,230 g (8900*70%) $ 2,670 8 (8900*30%) a End. Bal. $ 34,000 End. Bal. $ 3,900 Beg.Bal. $ $ Finished Goods 100,000 $ 619,000 K 569,000 Beg.Bal. b If (9500*40) End. Bal. $ $ $ $ $ Videos-in-Process 22,000 164,250 $ 569,000 101,000 380,000 98,250 End. Bal. $ 50,000 Studio and Equipment $ 768,000 Beg.Bal. Accumulated Depreciation $ 229,000 Beg.Bal. $ 77,250 d (103000*3/4) $ 25,750 d (103000*1/4) $ 332,000 End. Bal. $ 768,000 End. Bal. Depreciation expense Beg. Bal. (9500*40) Beg. Bal. b $ с $ d $ 25,750 Studio Overhead $ 380,000 54,750 91,000 77,250 129,000 6,230 $ 21,770 d $ $ If $ End. Bal. End. Bal. $ 25,750

Insurance expense Advertising expense Beg. Bal. Beg. Bal. 8 End. Bal. e $ $ 2,670 2,670 $ $ 149,000 149,000 End. Bal. Miscellaneous expense Administrative salaries expense Beg. Bal. h End. Bal. $ $ 10,500 10,500 Beg. Bal. f End. Bal. $ $ 114,000 114,000 Cost of Goods sold Sales Beg. Bal. k End. Bal. $ 619,000 619,000 $ $ Beg. Bal. 963,000 K 963,000 $ End. Bal. m $ Salaries and Wages Payable $ 326,000 Beg. Bal. $ 101,000 f $ 129,000 f $ 114,000 Accounts Payable 519,000 $ 128,800 Beg. Bal. $ 204,000 a $ 91,000 C $ 149,000 $ 10,500 h $ 64,300 End. Bal. $ 18,000 End. Bal. Retained earnings $ 289,000 Beg. Bal. Capital Stock 508,000 Beg. Bal. End. Bal. $ 289,000 End. Bal. $ 508,000

Requirement 3 $ Computation of Pre-Determined Overhead rate Estimated Studio Overhead cost Estimated camera hours Pre-determined studio Overhead rate (360000/9000) 360,000 9000 40 $ Computation of Over-applied or Under-applied OH Actual camera hours activity Applied Studio Overhead (9500 camera hrs*$40) 9500 380,000 $ Actual Studio Overhead Incurred Indirect Material (219000*25%) Utility costs Studio Depreciation (103000*3/4) Indirect Labor Studio Insurance (8900*70%) Total Actual Studio Overhead $ $ $ $ $ $ 54,750 91,000 77,250 129,000 6,230 358,230 Over-applied Studio Overhead (38000-358230) $ 21,770 Manufacturing Overhead was Over-applied by $21,770 for the year.

$ $ 22,000 Requirement 4 Supreme Videos, Inc. Schedule of Cost of Goods Manufactured Beginning Videos in Process Direct Materials: Beginning Raw Materials $ 49,000 Add- Purchase of raw materials $ 204,000 Total raw materials available $ 253,000 Less- Ending raw materials $ (34,000) Raw materials used in production $ 219,000 Less- Indirect materials $ (54,750)| Direct Materials used in production $ Direct Labor $ Applied Studio Overhead (9500*40) $ Total Manufacturing costs added to production Total manufacturing costs to account for Less- Ending Videos in Process Cost of Goods manufactured 164,250 101,000 380,000 $ $ $ $ 645,250 667,250 (98,250) 569,000 $ Requirement 5 Supreme Videos, Inc. Schedule of Cost of Goods sold Beginning Finished Goods Add- Cost of goods manufactured Cost of Goods available for sale Less- Ending finished goods Cost of Goods sold Less-Overapplied Studio Overhead Adjusted Cost of Goods sold $ $ $ $ $ $ $ 100,000 569,000 669,000 (50,000) 619,000 (21,770) 597,230

$ $ $ 963,000 (597,230) 365,770 $ Requirement 6 Supreme Videos, Inc. Income Statement For the year ended December 31 Sales Less- Adjusted Cost of Goods sold Gross Profit Less- Selling and administrative expenses Depreciation expenses Insurance expense Advertising expense Miscellaneous expense Administrative Salaries expense Total Selling and administrative expenses Net Income $ $ $ 25,750 2,670 149,000 10,500 114,000 $ $ $ $ 301,920 63,850