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 $105,000 of manufacturing overhead for an estimated activity level of $50,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows:

Raw materials Work in process Finished goods 10,500 s 4,600 $ 8,400 During the year, the following transactions were completed: a. Raw materials purchased on account, $ 170,000. b. Raw materials used in production, $142,000 (materials costing $129,000 were charged directly to jobs, the remaining materials were indirect). c. Costs for employee services were incurred as follows: Direct labor $151,000 244,700 25,000 40,000 Indirect labor Sales commissions Administrative salaries d. Rent for the year was $19,000 (S13,600 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. f. Advertising costs incurred, $12,000. g. Depreciation recorded on equipment, $23,000. ($16,000 of this amount related to equipment used in factory operations; the remaining $7,000 related to equipment used in selling and administrative activities.) h. Manufacturing overhead cost was applied to jobs, $ i. Goods that had cost $227,000 to manufacture according to their job cost sheets were completed. j. Sales for the year (all paid in cash) totaled $498,000. The total cost to manufacture these goods according to their job cost sheets was $216,000.

Answer 1

	predetermined overhead rate =			105000/50000
				210%
	Accounting titles & Explanations					debit	Credit
a)	Raw materials inventory					170,000
	cash						170,000
b)	work in process inventory					129,000
	Factory overhead					13,000
	Raw materials inventory						142,000
c)	Work in process inventory					151,000
	Factory overhead					244,700
	Sales commission expense					25,000
	Salaries expense					40,000
	cash						460,700
d)	Factory overhead					13,600
	Rent expense					5,400
	cash						19,000
e)	Factory overhead					16,000
	cash						16,000
f)	Advertising expense					12,000
	cash						12,000
g)	Factory overhead					16,000
	Depreciation expense					7,000
	Accumulated depreciation						23,000
h)	work in process inventory					317100
	Factory overhead		(151,000*210%)				317100
i)	finished goods inventory					227,000
	work in process inventory						227,000
j)	Cash					498,000
	Sales revenue						498,000
	cost of goods sold					216,000
	finished goods inventory						216,000
	T-Accounts
	Raw materials				Work in process
Bal	10,500				Bal	4,600
a)	170,000	142,000	b)		b)	129,000	227,000	i)
					c)	151,000
Bal	38,500				h)	317100
					Bal	374,700
					Manufacturing overhead
	Finished goods				beg.bal	0
Bal	8,400				b)	13,000	317100	h)
i)	227,000	216,000			c)	244,700
					d)	13,600
Bal	19,400				e)	16,000
					g)	16,000
							13,800	Bal
	cost of goods sold
Beg.bal	0
j)	216,000
3a)	Manufacturing overhead is over applied
3B)	Journal entry
	Account titles & Explanations					Debit	Credit
	Factory overhead					13,800
	Cost of goods sold						13,800
4)		Income Statement
	Sales						498,000
	less : cost of goods sold			(216000-13800)			202,200
	Gross margin						295,800
	less:Selling & administrative expense
	Sales comission					25,000
	Administrative salaries					40,000
	Rent exepense					5,400
	Advertising expense					12,000
	Depreciation expense					7,000	89,400
	Net operating income						206,400