Question

Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1, are given below. $ 79,000 118,000 $ 46,000 24,000 97,000 Supreme Videos, Inc. Balance Sheet January 1 Assets Current assets: Cash Accounts receivable Inventories: Raw materials (film, costumes) Videos in process Finished videos awaiting sale Prepaid insurance Total current assets Studio and equipment Less accumulated depreciation Total assets Liabilities and Stockholders' Equity Accounts payable Capital stock Retained earnings Total liabilities and stockholders' equity 167,000 12,200 376,200 762,000 226,000 536,000 $912,200 $121,200 $505,000 286,000 791,000 $912,200 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 is based on a cost formula that estimated $294,000 in manufacturing overhead for an estimated allocation base of 7,000 camera-hours. The following transactions occurred during the year: a. Film, costumes, and similar raw materials purchased on account, $201.000. b. Film, costumes, and other raw materials used in production, $216,000 (80% of this material was considered direct to the videos in production, and the other 20% was considered indirect). c. Utility costs incurred in the production studio, $88,000. d. Depreciation recorded on the studio, cameras, and other equipment, $100,000. Three-fourths of this depreciation related to production of the videos, and the remainder related to equipment used in marketing and administration. e. Advertising expense incurred on account, $146,000. f. Costs for salaries and wages were incurred as follows:

Answer 1

Answer:

Req 1&2:

Cash Beg Balance $79,000 866,000 839,000 m End Balance $106,000 Raw Materials Beg Balance a $46,000 201,000 216,000 lb End Balance $31,000 Videos in Process Beg Balance b f i 566,000 24,000 172,800 98,000 361,200 End Balance 90,000 Studio and equipment Beg Balance 762,000 End Balance 762,000

361,200 i Studio Overhead Beg Balance b c d d f 9 43,200 88,000 75,000 126,000 6,450 End Balance 22,550 Insurance expense Beg Balance 9 2,150 End Balance 2,150 Miscellanous expense Beg Balance h 10,200 End Balance 10,200

Cost of goods sold Beg Balance K 616,000 End Balance 616,000 Salaries and wages payable Beg Balance m 323,000 335,000 End Balance 12,000 Retained Earnings Beg Balance 286,000 End Balance 286,000

Accounts Receivable Beg Balance K 118,000 957,000 866,000 End Balance 209,000 Prepaid Insurance Beg Balance 12,200 8,600 g End Balance 3,600 Finished Goods Beg Balance 97,000 566,000 616,000 K End Balance 47,000 Accumulated Depreciation Beg Balance j 226,000 100,000 d End Balance 326,000

Depreciation expense Beg Balance d 25,000 End Balance 25,000 Advertising expense Beg Balance e 146,000 End Balance 146,000 Administrative Salaries expense Beg Balance f 111,000 End Balance 111,000 Sales Beg Balance 957,000 K End Balance 957,000

Accounts Payable Beg Balance 516,000 $121,200 201,000 a 88,000 C 146,000 e 10,200 h End Balance $50,400 Capital Stock Beg Balance $505,000 End Balance $505,000

Req 3:

Manufacuting overhead was

Overapplied

by

22,550

for the year

Req 4:

Supreme Videos Inc
Schedule of Cost of Goods Manufactured
Direct Materials
Beginning raw materials	46,000
Add: Purchase of raw materials	201,000
Total raw materials	247,000
Less: Ending raw material inventory	31,000
Raw materials used in production	216,000
Less: Indirect materials	43,200	172,800
Direct Labor		98,000
Manufacturing overhead applied to work in process		361,200
Total Manufacturing costs		632,000
Add: Beginning videos in process inventory		24,000
		656,000
Less Ending videos in process inventory		90,000
Cost of goods manufactured		566,000

Req 5:

Supreme Videos Inc
Schedule of Cost of Goods Sold
Beginning finished goods inventory	97,000
Add: Cost of goods manufactured	566,000
Cost of goods available for sale	663,000
Less: Ending finished goods inventory	47,000
Unadjusted cost of goods sold	616,000
Less:Overapplied overhead	22,550
Adjusted cost of goods sold	593,450

Req 6:

Supreme Videos Inc
Income Statement
For the year ended December 31
Sales		957,000
Cost of Goods Sold		593,450
Gross Margin		363,550
Selling and administrative expenses
Depreciation expense	25,000
Advertising expense	146,000
Administrative Salaries expense	111,000
Insurance Expense	2,150
Miscellaneous Expense	10,200
		294,350
Net operating Income		69,200

Calculation:

To prepare the T accounts, we need to include the beginning balances from the balance sheet given and then input the amounts from the transactions accordingly.

All amounts except the below are provided in the question.

Studio Overhead = $294,000 ÷ 7,000 hours = $42per hour;

8,600 hours × $42per hour = $361,200

Videos in process = 216,000 x 80% = 172,800

3.

Overapplied overhead : It is the ending balane of the T account - Studio Overhead

Studio Overhead
Beg Balance
b	43,200	361,200	i
c	88,000
d	75,000
f	126,000
g	6,450
End Balance		22,550

4.

Schedule of Cost of Goods Manufactured:

Inorder to prepare the Schedule of Cost of Goods Manufactured, first take take the Beginning raw materials , add the Purchase of raw materials. Then subtract the Ending raw material inventory and Indirect materials.

Then we need to add the Direct Labor and the Manufacturing overhead applied to work in process to get the Total Manufacturing costs.

Next we need to sum the Beginning videos in process inventory and subtract the Ending videos in process inventory to calculate the cost of goods manufactured

The cost of goods manufactured from this schedule prepared = $566,000 It equals to the transaction “j.”.

5.

Schedule of Cost of Goods Sold

Inorder to prepare the Schedule of Cost of Goods Sold, first we take the Beginning finished goods inventory and then add the Cost of goods manufactured to calculate the Cost of goods available for sale.

Next we need to subtract the Ending finished goods inventory to calculate the Unadjusted cost of goods sold

The unadjusted cost of goods sold = $616,000.

It agrees with transaction “k.”

Then we need to subtract the Overapplied overhead to calculate the Adjusted cost of goods sold

6. Income Statement

Inorder to prepare the Income Statement, we need to take the ending balance of sales and then deduct the  Cost of Goods Sold to get the Gross Margin.

Then we need to deduct the Selling and administrative expenses like Depreciation expense, Advertising expense,Administrative Salaries expense, Insurance Expense and Miscellaneous Expense to get the Net operating Income