Gold Nest Company of Guandong, China, is a family-owned enterprise that makes bi
ID: 2329320 • Letter: G
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 $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
$
10,900
Work in process
$
4,800
Finished goods
$
8,500
During the year, the following transactions were completed:
Raw materials purchased for cash, $ 167,000.
Raw materials used in production, $144,000 (materials costing $121,000 were charged directly to jobs; the remaining materials were indirect).
Cash paid to employees as follows:
Direct labor
$
158,000
Indirect labor
$
184,800
Sales commissions
$
22,000
Administrative salaries
$
48,000
Cash paid for rent during the year was $18,600 ($13,400 of this amount related to factory operations, and the remainder related to selling and administrative activities).
Cash paid for utility costs in the factory, $19,000.
Cash paid for advertising, $15,000.
Depreciation recorded on equipment, $22,000. ($15,000 of this amount related to equipment used in factory operations; the remaining $7,000 related to equipment used in selling and administrative activities.)
Manufacturing overhead cost was applied to jobs, $?.
Goods that had cost $227,000 to manufacture according to their job cost sheets were completed.
Sales for the year (all paid in cash) totaled $501,000. The total cost to manufacture these goods according to their job cost sheets was $220,000.
Required:
1. Prepare journal entries to record the transactions for the year.
2. Prepare T-accounts for each inventory account, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the beginning balances in your inventory accounts).
3A. Is Manufacturing Overhead underapplied or overapplied for the year?
3B. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.
4. Prepare an income statement for the year. (All of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.)
Prepare T-accounts for each inventory account, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don’t forget to enter the beginning balances in your inventory accounts). (Do not round intermediate calculations.)
Raw Materials
Work in Process
Beg. Bal.
10,900
Beg. Bal.
4,800
a.
167,000
144,000
b.
b.
121,000
c.
158,000
j.
End. Bal.
33,900
End. Bal.
283,800
Finished Goods
Manufacturing Overhead
Beg. Bal.
Beg. Bal.
End. Bal.
Cost of Goods Sold
End. Bal.
Beg. Bal.
End. Bal.
Raw materials
$
10,900
Work in process
$
4,800
Finished goods
$
8,500
Explanation / Answer
predetermined overhead rate = 76500/45,000 1.7 No. Accounting titles & Explanations debit Credit a) Raw materials inventory 167,000 cash 167,000 b) work in process inventory 121,000 Factory overhead 23,000 Raw materials inventory 144,000 c) Work in process inventory 158,000 Factory overhead 184,800 Sales commission expense 22,000 Salaries expense 48,000 cash 412,800 d) Factory overhead 13,400 Rent expense 5,200 cash 18,600 e) Factory overhead 19,000 cash 19,000 f) Advertising expense 15,000 cash 15,000 g) Factory overhead 15,000 Depreciation expense 7,000 Accumulated depreciation 22,000 h) work in process inventory 268600 Factory overhead (158000*170%) 268600 i) finished goods inventory 227,000 work in process inventory 227,000 j) Cash 501,000 Sales revenue 501,000 cost of goods sold 220,000 finished goods inventory 220,000 T-Accounts Raw materials Work in process Bal 10,900 144,000 b) Bal 4,800 227,000 i) a) 167,000 b) 121,000 c) 158,000 Bal 33,900 h) 268600 Bal 325,400 Finished goods Manufacturing overhead Bal 8,500 220,000 j) b) 23,000 268600 h) i) 227,000 c) 184,800 d) 13,400 Bal 15,500 e) 19,000 g) 15,000 13,400 Bal cost of goods sold j) 220,000 3a) Manufacturing overhead is over applied 3B) Journal entry Account titles & Explanations Debit Credit Factory overhead 13,400 Cost of goods sold 13,400 4) Income Statement Sales 501,000 less : cost of goods sold (220,000-13,400) 206,600 Gross margin 294,400 less:Selling & administrative expense Sales comission 22,000 Administrative salaries 48,000 Rent exepense 5,200 Advertising expense 15,000 Depreciation expense 7,000 97,200 Net operating income 197,200
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