Question

Check my 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 $ 11,000 $4,100 $ 8,500 During the year, the following transactions were completed: a. Raw materials purchased on account, $166,000, b. Raw materials used in production, $148,000 (materials costing $122.000 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 $ 167,000 $ 198,500 $ 24,000 $ 43,000

Answer 1

1.

Journal Entries
	Details	Debit ($)	Credit ($)
a	Raw materials	166000
	To Cash		166000
b	Work in process	122000
	Manufacturing overhead	26000
	To Raw materials		148000
c	Work in process	167000
	Manufacturing overhead	198500
	Sales commissions expense	24000
	Administrative salaries	43000
	To cash		432500
d	Manufacturing Overheads	13300
	Rent Expenses	5100
	To cash		18400
e	Manufacruring Overhead	15000
	To cash		15000
f	Advertisment Expenses	10000
	To cash		10000
g	Manufacruring Overhead	18000
	Depreciation Expenses	6000
	To Accumulated Depreciation		24000
h	Work in process	283900
	To Manufacturing Overhead		283900
i	Finished goods	230000
	To Work in process		230000
J(1)	Cash	509000
	To sales		509000
J(2)	Cost of goods sold	218000
	To Finished goods		218000

Predetermined overhead rate:

Predetermined overhead rate= Estimated manufacturing overhead/Estimated direct labor cost

'=76500/45000

=1.7

Applied manufacturing overhead cost:

Applied manufacturing overhead cost= Actual direct labor cost * predetermined overhead rate

=167000*1.7

=283900

2.

Raw material A/c
Dr			Cr
Opening Balance	11000	b	148000
a	166000
		Closing balance	29000
	177000		177000
Work in process
Dr			Cr
Opening Balance	4100	i	230000
b	122000
c	167000
h	283900
		Closing balance	347000
	577000		577000
Finished goods
Dr			Cr
Opening Balance	8500	J(2)	218000
i	230000
		Closing balance	20500
	238500		238500
Manufacturing Overhead
Dr			Cr
b	26000	h	283900
c	198500
d	13300
e	15000
g	18000
Closing balance	13100
	283900		283900
Cost of goods sold
Dr			Cr
J(2)	218000
		Closing balance	218000
	218000		218000

3A. manufacturing overhead over-applied or under-applied
Manufacturing overhead cost incurred:	Amount
Indirect Materials	26000
Indirect labor	198500
Factory rent	13300
utility cost	15000
Depreciation on equipment	18000
A. total manufacturing cost incurred	270800
B. Manufacturing overhead applied	283900
C. over-applied /(under-applied)(B-A)	13100

3B

Adjustment	Manufacturing overhead	13100
	To Cost of goods sold		13100
	(To charge Overapplied manufacturing overhead to COGS)

4.

Income Statement
Particulars	Amount ($)	Amount ($)
Sales		509000
Less: Cost of goods sold (218000-13100)		204900
Gross Profit		304100
Less: Selling and administration expenses
sales commission	24000
Administrative salaries	43000
Rent Expenses	5100
Advertisment Expenses	10000
Depreciation Expenses	6000	88100
Net Income		216000