Gold Nest Company of Guandong, China, is a family-owned enterprise that makes bi

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 $85,000 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 $10,600 Work in process4,600 Finished goods $ 8,100 During the year, the following transactions were completed: a. Raw materials purchased for cash, $169,000 b. Raw materials used in production, $149,000 (materials costing $124,000 were charged directly to jobs; the remaining materials were indirect). C. Cash paid to employees as follows: Direct labor Indirect labor Sales commissions Administrative salaries $164,000 196,200 $ 20,000 40,000

Explanation / Answer

SOLUTION

1. Journal Entries-

*H- Predetermined overhead rate = Estimated actual manufacturing overhead cost / Estimated total amount of the allocation base

= $85,000 / 50,000 = 170% of direct labor cost

Actual direct labor cost = $164,000

Manufacturing overhead = $164,000 * 170% = $278,800

S.No. Accounst titles and Explanation Debit ($) Credit ($) A. Raw materials 169,000 Cash 169,000 B. Work in process 124,000 Manufacturing overhead 25,000 Raw materials 149,000 C. Work in process 164,000 Manufacturing overhead 196,200 Sales commissions expense 20,000 Salaries expense 40,000 Cash 420,200 D. Manufacturing overhead 13,500 Rent expense 5,100 Cash 18,600 E. Manufacturing overhead 15,000 Cash 15,000 F. Advertising expense 10,000 Cash 10,000 G. Manufacturing overhead 16,000 Depreciation expense 5,000 Accumulated depreciation 21,000 H. Work in process* 278,800 Manufacturing overhead 278,800 I. Finished goods 227,000 Work in process 227,000 J. Cash 500,000 Sales 500,000 Cost of goods sold 220,000 Finished goods 220,000

Related Questions

Navigate

• Browse (All)
• Browse G
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.