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 $67,500 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 Nork in process Finished goods $10,B00 $ 4,100 $ 8,000 During the year, the following transactions were completed: a. Raw materials purchased for cash, $160,000. b. Raw materials used in production, $142,000 (materials costing $122,000 were charged directly to jobs; the remaining materials were indirect). c. Cash paid to employees as follows: Direct labor Indirect labor Sales comainsions dministrative salaries $ 176,000 187,700 $ 29,000 $ 42,000 d. Cash paid for rent during the year was $18,800 ($13,700 of this amount related to factory operations, and the remainder related to selling and administrative activities) e. Cash paid for utility costs in the factory, $12,000. f. Cash paid for advertising, $12,000. g. Depreciation recorded on equipment, $25,000. ($16,000 of this amount related to equipment used in factory operations; the remaining $9,000 related to equipment used in selling and administrative activities.) h. Manufacturing overhead cost was applied to jobs, $L i. Goods that had cost $226,000 to manufacture according to their job cost sheets were completed. j. Sales for the year (all paid in cash) totaled $506,000. The total cost to manufacture these goods according to their job cost sheets was $215,000. 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

Explanation / Answer

1.

2.

3A. Costs incurred= 249400, applied= 281550. it is overapplied

3B.

4.

Income statement

Ref Account Debit Credit a Inventory     1,60,000 Cash 1,60,000    b Work in process     1,22,000    b Manufacturing overhead        20,000 Inventory 1,42,000    c Work in process     1,76,000    c Manufacturing overhead     1,87,700 c Sales commission        29,000 c Administrative salaries        42,000 Cash 4,34,700 d Manufacturing overhead        13,700 d Selling and administrative expenses          5,100 Cash      18,800    e Manufacturing overhead        12,000    Cash      12,000    f Advertising expenses        12,000    Cash      12,000    g Manufacturing overhead        16,000    g Selling and administrative expenses          9,000 Accumulated depreciation      25,000 h Work in process     2,81,550    Manufacturing overhead 2,81,550    i Finished goods     2,26,000    Work in process 2,26,000    j Cost of goods sold     2,15,000    Finished goods 2,15,000    j Cash 506000    Sales revenue 5,06,000

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