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: $ 88,000 114,600 Raw materials (film, costumes) $20,000 51,800 97,200 Videos in process Finished videos awaiting sale Prepaid insurance Studio and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Retained earnings Total liabilities and stockholders' equity 169,000 10,750 598,000 $ 980,350 $189,000 791,350 980,350 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, $189,500. b. Film, costumes, and other raw materials issued to production, $200,000(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, $93,800. d. Depreciation recorded on the studio, cameras, and other equipment, $112,400. 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), $153,000 f. Salaries and wages paid in cash as follows:
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Answer 1

Ans-Transaction Analysis:-

No.	Particulars	Cash	Accounts Receivable	Raw Materials	Videos in Process	Finished Goods	Manufacturing Overhead	Prepaid Insurance	Studio & Equipment (net)	=	Accounts Payable	Retained Earnings
	Beginning Balance	$ 88,000	$114,600	$20,000	$51,800	$97,200		$10,750	$598,000	=	$189,000	$791,350
a.	Raw material purchased			189,500							189,500
b.	Raw material consumed			-200,000	170,000		30,000
c.	Utility cost incurred						93,800				93,800
d.	Depreciation on equipment						84,300		-112,400			-28,100
e.	Advertisement incurred										153,000	-153,000
f.	Salaries and wages paid	-272,100			102,800		71,500					-97,800
g.	Prepaid insurance expired						5,985	-8,550				-2,565
h.	Misc. marketing and administrative expense										11,700	-11,700
i.	Manufacturing overhead applied				290,000		-290,000
j.	Cost of goods manufactured				-586,000	586,000
k.	Sales on account		998,000									998,000
l.	Cost of goods sold					-632,470						-632,470
m.	Cash collections	948,000	-948,000
n.	Payment to suppliers	-538,000									-538,000
o.	Over-applied overhead						4,415					4,415
	Ending Balance 12/31	$225,900	$164,600	$9,500	$28,600	$50,730	0	$2,200	$485,600	=	$99,000	868,130

Working Note-

Overhead Applied

Camera hours worked= 7,250

Pre determined overheads=40

Overhead absorted= $290,000

Total Overhead incurred=$285,585

Over-applied Overhead= $290,000-$285,585= $4,415

2- Preparing a schedule of cost of goods manufactured for the year:-

Star Videos, Inc.

Schedule of Cost of Goods Manufactured

For the Year Ended December 31

Particulars	Amount	Amount
Beginning inventory of raw material	20,000
Add": Purchases	189,500
Less: Ending inventory	9,500
Raw material consumed	200,000
Less: Indirect material consumed	30,000
Direct material consumed		170,000
Direct wages incurred		102,800
Manufacturing Overhead applied (7,250@ 40)		290,000
Total Manufacturing Cost		562,800
Add: Beginning balance of work in process		51,800
Less: Ending balance of work in process		28,600
Cost of Goods Manufactured		$586,000

3- Preparing a schedule of cost of goods sold for the year:-

Star Videos, Inc.

Schedule of Cost of Goods Sold

For the Year Ended December 31

Particulars	Amount ($)
Cost of goods manufactured (as computed above)	586,000
Add: Beginning inventory balance of Finished Goods	97,200
Cost of Goods available for sale	$683,200
Less: Ending inventory of Finished Goods	$50,730
Cost of goods to be sold	$632,470
Less: Over-applied Overhead	$4,415
Adjusted Cost of Goods Sold	$628,055

4- Star Videos, Inc.

Income Statement

For the Year Ended December 31

Particulars	Amount ($)	Amount ($)
Sales Revenue		$998,000
Less: Cost of goods sold (as computed above)		628,055
Gross Margin		$369,945
Less: Expenses
Depreciation on Equipment	28,100
Advertisement	153,000
Administrative Salaries	97,800
Insurance Expenses	2,565
Misc. Marketing and administrative expenses	11,700	$293,165
Net Income earned during the period		$76,780

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