Star Videos, Inc., produces short musical videos for sale to retail outlets. The

Question

Star Videos, Inc., produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1 are given below Star videos, Inc Balance Sheet January 1 Assets Cash Accounts receivable Inventories: $ 89,000 104,400 $20,200 59,000 82,400 Raw materials (film, costumes) Videos in process 161,600 12,350 618,000 $985,350 Finished videos awaiting sale Prepaid insurance Studio and equipment (net) Total asBets Liabilities and Stockholders' Equity Accounts payable Retained earnings Total liabilities and stockholders equity $180,000 805,350 $985,350 Because the videos differ in length and in complexity of production, the company uses a job-order costing system to determine the cost of each video produced. Studio (manufacturing) overhead is charged to videos on the basis of camera-hours of activity. The company's predetermined overhead rate for the year ($40 per camera-hour) is based on a cost formula that estimated $280,000 in manufacturing overhead for an estimated allocation base of 7,000 camera-hours. Any underapplied or overapplied overhead is closed to cost of goods sold. The following transactions were recorded for the year: a. Film, costumes, and similar raw materials purchased on account, $194,500. b. Film, costumes, and other raw materials issued to production, $210,000(85% of this material was considered direct to the videos in production, and the other 15% was considered indirect). c. Utility costs incurred (on account) in the production studio, $95,400 d. Depreciation recorded on the studio, cameras, and other equipment, $88,400. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration. e. Advertising expense incurred (on account), $139,500. f. Salaries and wages paid in cash as follows:

Explanation / Answer

Star Videos, Inc. Transaction Analysis For the Year Ended December 31 Cash Accounts Receivable Raw Materials Videos in Process Finished Goods Manufacturing Overhead Prepaid Insurance Studio & Equipment (net) = Accounts Payable Retained Earnings Beginning balance @ 1/1 89000 104400 20200 59000 82400 0 12350 618000 = 180000 805350 a) Raw material purchases 194500 = 194500 b) Raw materials used -210000 178500 31500 = c) Utility costs 95400 = 95400 d) Depreciation charges 66300 -88400 = -22100 e) Advertising = 139500 -139500 f) Salaries & wages -274800 95400 82000 = -97400 g) Prepaid insurance 7665 -10950 = -3285 h) Miscellaneous marketing = 13650 -13650 i) Applied overhead 290000 -290000 = j) Transfer completed videos to finished goods -504000 504000 = k) Sales 988000 = 988000 l) Transfer finished goods to cost of goods sold -544730 = -544730 m) Cash collections from customers 938000 -938000 = n) Payment to suppliers -528000 = -528000 o) Overapplied overhead 7135 = 7135 Ending balances @12/31 224200 154400 4700 118900 41670 0 1400 529600 = 95050 979820 Star Videos, Inc. Schedule of Cost of Goods Manufactured For the Year Ended December 31 Beginning raw materials inventory $ 20200 Raw material purchases 194500 Raw materials available for use 214700 Ending raw materials inventory -4700 Raw materials used 210000 Less: Indirect materials -31500 178500 Direct labor 95400 Manufacturing overhead 290000 Total manufacturing costs 563900 Beginning videos in process inventory 59000 Total videos in process inventory 622900 Ending videos in process inventory -118900 Cost of goods manufactured 504000 Star Videos, Inc. Schedule of Cost of Goods Sold For the Year Ended December 31 Cost of goods manufactured 504000 Beginning finished goods inventory 82400 Cost of goods available for sale 586400 Ending finished goods inventory -41670 Cost of goods sold 544730 Overapplied overhead -7135 Adjusted cost of goods sold $ 537595

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