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 $94,500 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 $10,800 $ 4,800 $ 8,600 During the year, the following transactions were completed: 5 a. Raw materials purchased on account. $170,000 b. Raw materials used in production, $146,000 (materials costing $120,000 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 $ 155,000 $ 239,900 $ 22,000 $ 47,000 d. Rent for the year was $19,000 ($13,800 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Utility costs incurred in the factory, $16,000. 1. Advertising costs incurred, $15,000. 9. Depreciation recorded on equipment. $21,000. ($16,000 of this amount related to equipment used in factory operations; the remaining $5,000 related to equipment used in selling and administrative activities.) h. Manufacturing overhead cost was applied to jobs, $ ? Candle that harrnet 05 to manufacture arrin to their intenet chante warmnino

Answer 1

Predetermined overhead rate:

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

=94,500/45000

=$ 2.10 per direct labor dollar

Applied manufacturing overhead cost:

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

=155,000*2.10

=$ 325,500

1. Journal Entries

Transaction	General journal	Debit ($)	Credit ($)
a	Raw materials	170,000
	Cash		170,000
	(Raw material purchased)
b	Work in process	120,000
	Manufacturing overhead	26,000
	Raw materials		146,000
	(Raw materials used in production)
c	Work in process	155,000
	Manufacturing overhead	239,900
	Sales commission expense	22,000
	Salaries expense	47,000
	Cash		463,900
	(Cash paid to employees)
d	Manufacturing overhead	13,800
	Rent expense	5,200
	Cash		19,000
	(Cash paid for rent)
e	Manufacturing overhead	16,000
	Cash		16,000
	(Cash paid for utility costs)
f	Advertising expense	15,000
	Cash		15,000
	(Cash paid for advertisement)
g	Manufacturing overhead	16,000
	Depreciation expense	5,000
	Accumulated Depreciation		21,000
	(Depreciation recorded on equipment)
h	Work in process	325,500
	Manufacturing overhead		325,500
	(Manufacturing overhead applied)
i	Finished goods	225,000
	Work in process		225,000
	(Goods manufactured and transferred to finished goods)
j	Cash	449,000
	Sales revenue		449,000
	(to record sales)
j2	Cost of goods sold	216,000
	Finished goods		216,000
	(to record cost of goods sold)

2. T-Accounts

Raw material
Debit	Credit
Beginning Balance	10,800	b	146,000
a	170,000
Ending Balance	34,800

Work in process
Debit	Credit
Beginning Balance	4,800	i	225,000
b	120,000
c	155,000
h	325,500
Ending Balance	380,300

Finished Goods
Debit	Credit
Beginning Balance	8,600	j2	216,000
i	225,000
Ending Balance	17,600

Manufacturing overhead
Debit	Credit
Beginning Balance		h	325,500
b	26,000
c	239,900
d	13,800
e	16,000
g	16,000
		Ending Balance	13,800

Cost of goods sold
Debit	Credit
Beginning Balance
j2	216,000
Ending Balance	216,000

3A. Manufacturing overhead over-applied or under-applied

	Amount ($)
Manufacturing overhead cost incurred:
Indirect Materials	26,000
Indirect labor	239,900
Factory rent	13,800
Utility cost	16,000
Depreciation on equipment	16,000
A. Total manufacturing cost incurred	311700
B. Manufacturing overhead applied	325,500
C. over-applied /(under-applied) (B-A)	13,800
Manufacturing overhead was over-applied	13,800

3B. Journal entry to close any balance in manufacturing overhead

Transaction	General journal	Debit ($)	Credit ($)
Adjustment	Manufacturing overhead	13,800
	Cost of goods sold		13,800

4. Income Statement

Revised cost of goods sold balance = Cost of goods sold - Manufacturing overhead over-applied

=216,000 - 13,800

=202,200

Gold Nest Company
Income statement
For the Year Ended
Sales		499,000
Cost of goods sold		202,200
Gross profit		296,800
Selling and Administration expenses:
Sales commission	22,000
Administrative salaries	47,000
Rent expense	5,200
Advertisement expense	15,000
Depreciation expense	5,000
Total Selling and Administration expenses:		(94,200)
Net income		202,600