Question

Gold Nest Company of Guendong. China, is a family-owned eterprise thet makes birdicages for the South Chins market The company els its birdicages 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 besis of direct lsbor cost. Its predetermined averhead rete s besed on a cost formuls thet estimated $92000 of manufecturing overhead for an estimated activity level of $40,000 direct lebor dollars. At the beginning of the year the Inventory balances were es follows: Raw materLals work in process Finished goods $18,980 4,200 S 8,600 During the year, the following transections were completed Raw materisis purchased on account, S 168,000. b Raw materias used in production, $150,000 (materials costing $123,000 were chearged directly to jobs the remaining meterials were Indirect c Coats for emplayee senvices were incurred es fallows Direct labor $151,880 S 256,488 S23,a00 s 44,000 Indirect labar Sales commissions Adeinistrative salaries d Rent for the year was $18.800 ($13,300 of this amount related to fectory operstions, and the remainder relsted to selling and diministrative ectivitles) e Utlity costs incurred in the fectory. $20,000 EAdventaing costs Iincurred, $11,000. g Depreciation recorded on equipment $23,000. (S5,000 afthis amount relsted to equipment used in fectory operetions; the remaining $7000 related to equipment used in selling and administrative activitles.) h. Manufacturing overhesd cost was aspplied to jobs. $_ LGoods that had cost $228,000 to manufacture according to their job cost sheets were completed Sale for the year (all peid in cash) totaled $503,000. The total cost to manufacture these goods accordling to theirjob cost sheets was $217,000 Required: 1 Prepare joumal entries to record the transa ctions for the year 2 Prepare T-sccounts for esch inventory eccount, Manufacturing Overhesd, and Cost of Goods Sold. Post relevant dets from your ournal entries to these T-eccounts (dont forget to enter the beginning balances in your inventory accounts) 3A ls Manufecturing Overhesd underapplied or overapplied for the year? 38. Prepare a jounal entry to close any balance in the Manufacturing Overheed account to Cost of Goods Sald 4. Prepare an income statement for the year All ofthe information needed forthe Income statement is available in the jounal entries and T-eccounts you have prepared

Answer 1

(figures are bit blurry please change if required)
	predetermined overhead rate =			92000/40,000
				230%
	Accounting titles & Explanations					debit	Credit
a)	Raw materials inventory					168,000
	cash						168,000
b)	work in process inventory					123,000
	Factory overhead					27,000
	Raw materials inventory						150,000
c)	Work in process inventory					151,000
	Factory overhead					256,400
	Sales commission expense					23,000
	Salaries expense					44,600
	cash						475,000
d)	Factory overhead					13,300
	Rent expense					5,600
	cash						18,900
e)	Factory overhead					20,000
	cash						20,000
f)	Advertising expense					11,000
	cash						11,000
g)	Factory overhead					16,000
	Depreciation expense					7,000
	Accumulated depreciation						23,000
h)	work in process inventory					347300
	Factory overhead		(151,000*230%)				347300
i)	finished goods inventory					229,000
	work in process inventory						229,000
j)	Cash					503,000
	Sales revenue						503,000
	cost of goods sold					217,000
	finished goods inventory						217,000
	T-Accounts
	Raw materials				Work in process
Bal	10,900				Bal	4,200
a)	168,000	150,000	b)		b)	123,000	229,000	i)
					c)	151,000
Bal	28,900				h)	347300
					Bal	396,500
					Manufacturing overhead
	Finished goods				beg.bal	0
Bal	8,600				b)	27,000	347300	h)
i)	229,000	217,000			c)	256,400
					d)	13,300
Bal	20,600				e)	20,000
					g)	16,000
							14,600	Bal
	cost of goods sold
Beg.bal	0
j)	217,000
3a)	Manufacturing overhead is over applied
3B)	Journal entry
	Account titles & Explanations					Debit	Credit
	Factory overhead					14,600
	Cost of goods sold						14,600
4)		Income Statement
	Sales						503,000
	less : cost of goods sold			(217000-14600)			202,400
	Gross margin						300,600
	less:Selling & administrative expense
	Sales comission					23,000
	Administrative salaries					44,600
	Rent exepense					5,600
	Advertising expense					11,000
	Depreciation expense					7,000	91,200
	Net operating income						209,400