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 $67,500 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, 100 $ 4,900 $ 8,300 During the year, the following transactions were completed: a. Raw materials purchased on account, $162,000. b. Raw materials used in production, $142,000 (materials costing $121,000 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 $ 165,000 $ 170, 600 $ 27,000 $ 47,000

Answer 1

1)	Journal Entries
	Event	Particulars			Debit	Credit
	a)	Raw Materials			$ 1,62,000.00
		To Accounts Payable				$ 1,62,000.00
	b)	Work in Process			$ 1,21,000.00
		Manufacturing Overhead			$    21,000.00
		To Raw Materials				$ 1,42,000.00
	c)	Work in Process			$ 1,65,000.00
		Manufacturing Overhead			$ 1,70,600.00
		Sales Commission			$    27,000.00
		Salaries Expense			$    47,000.00
		To Salaries Payable				$ 4,09,600.00
	d)	Manufacturing Overhead			$    13,300.00
		Rent Expense			$      4,800.00
		To Accounts Payable				$    18,100.00
	e)	Manufacturing Overhead			$    11,000.00
		To Accounts Payable				$    11,000.00
	f)	Advertising Expense			$    12,000.00
		To Accounts Payable				$    12,000.00
	g)	Manufacturing Overhead			$    17,000.00
		Depreciation Expense			$      6,000.00
		To Accumulated Depreciation				$    23,000.00
	h)	Work in Process			$ 2,47,500.00
		To Manufacturing Overhead				$ 2,47,500.00
		($ 67500 x $ 165000 / $ 45000)
	i)	Finished Goods Inventory			$ 2,26,000.00
		To Work in Process				$ 2,26,000.00
	j)	Cash			$ 5,18,000.00
		To Sales				$ 5,18,000.00
		Cost of Goods sold			$ 2,18,000.00
		To Finished Goods Inventory				$ 2,18,000.00

2)
	Raw Materials Inventory					Work in Process					Finished Goods Inventory
	Beg. Bal.	$    10,100.00	c)	$ 1,42,000.00		Beg. Bal.	$      4,900.00	i)	$ 2,26,000.00		Beg. Bal.	$      8,300.00	j)	$ 2,18,000.00
	a)	$ 1,62,000.00	End. Bal.	$    30,100.00		b)	$ 1,21,000.00				i)	$ 2,26,000.00	End. Bal.	$    16,300.00
		$ 1,72,100.00		$ 1,72,100.00		c)	$ 1,65,000.00					$ 2,34,300.00		$ 2,34,300.00
						h)	$ 2,47,500.00	End. Bal.	$ 3,12,400.00
							$ 5,38,400.00		$ 5,38,400.00
	Manufacturing Overhead					Cost of Goods sold
	b)	$    21,000.00	h)	$ 2,47,500.00		j)	$ 2,18,000.00	End. Bal.	$ 2,18,000.00
	c)	$ 1,70,600.00
	d)	$    13,300.00
	e)	$    11,000.00
	g)	$    17,000.00

3.a)	Overapplied
3.b)	Journal Entry
	Particulars			Debit	Credit
	Manufacturing Overhead			$ 14,600.00
	To Cost of Goods sold				$ 14,600.00

4)
	Income Statement
	Sales				$ 5,18,000.00
Less:	Cost of Goods sold				$ 2,03,400.00
	Gross Margin				$ 3,14,600.00
	Selling and Adm. Expenses:
	Sales Commission			$ 27,000.00
	Salaries Expense			$ 47,000.00
	Rent Expense			$   4,800.00
	Advertising Expense			$ 12,000.00
	Depreciation Expense			$   6,000.00	$    96,800.00
	Operating Income				$ 2,17,800.00