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 $10,000 $4,600 $ 8.000 During the year, the following transactions were completed: a. Raw materials purchased on account, $164,000. b. Raw materials used in production, $142,000 (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 $ 178,000 $ 290,800 $ 22,000 $ 45,000

Answer 1

1.

Transaction/ Event	Account Titles	Debit	Credit
		$	$
a.	Raw materials inventory	164000
	Accounts payable		164000
b.	Work in process inventory	122000
	Manufacturing overhead	20000
	Raw materials inventory		142000
c.	Work in process inventory	178000
	Manufacturing overhead	290800
	Sales commission expense	22000
	Salaries expense	45000
	Salaries and wages payable		535800
d.	Manufacturing overhead	13,500
	Rent expense	5,100
	Accounts payable		18,600
e.	Utilities expense	17000
	Accounts payable		17000
f.	Advertising expense	11000
	Accounts payable		11000
g.	Manufacturing overhead	18000
	Depreciation expense	4000
	Accumulated depreciation : Equipment		22000
h.	Work in process inventory ( 94500 / 45000 * 178000 )	373800
	Manufacturing overhead		373800
i.	Finished goods inventory	225000
	Work in process inventory		225000
j. 1.	Cash	515000
	Sales Revenue		515000
j. 2.	Cost of goods sold	218000
	Finished goods inventory		218000

2.

Raw Materials Inventory
Beg. bal.	10000
a.	164000	b.	142000
End. bal.	32000
Work in Process Inventory
Beg. bal.	4600	i.	225000
b.	122000
c.	178000
h.	373800
End. bal.	453400
Finished Goods Inventory
Beg. bal.	8000	j.	218000
i.	225000
End. bal.	15000
Manufacturing Overhead
Beg. bal.	0	h.	373800
b.	20000
c.	290800
d.	13,500
e.	17000
g.	18000
Cost of goods sold	14500
Cost of Goods Sold
Beg. bal.	0	Manufacturing overhead	14500
j.	218000
	203500

3A.

Manufacturing overhead is over-applied for the year.

3B.

Account Titles	Debit	Credit
Manufacturing Overhead	14500
Cost of Goods Sold		14500

4.

Income Statement For the year ended
Sales		$515000
Cost of Goods Sold		203500
Gross Profit		311500
Selling and Administrative Expenses
Advertising Expense	11000
Sales Commission Expense	22000
Salaries Expense	45000
Rent Expense	5100
Depreciation Expense	4000	87100
Net Operating Income		$224400