Gold Nest Company of Guandong, China, 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 that applies overhead to jobs based on direct labor cost. Its predetermined overhead rate is based on a cost formula that estimated $85,500 of manufacturing overhead for an estimated activity level of $45,000 direct labor dollars. The beginning inventory balances were as follows:
Raw materials
$ 10,300
Work in process
$ 4,500
Finished goods
$ 8,200
During the year, the following transactions were completed:
Raw materials purchased on account, $161,000.
Raw materials used in production, $145,000 (materials costing $120,000 were charged directly to jobs; the remaining materials were indirect).
Employee expenses incurred (credit Salaries and wages payable):
Direct labor
$ 167,000
Indirect labor
$ 234,300
Sales commissions
$ 22,000
Administrative salaries
$ 48,000
Rent for the year was $18,800 ($13,400 related to factory operations, and the remainder related to selling and administrative activities).
Utility costs incurred in the factory, $14,000.
Advertising costs incurred, $13,000.
Depreciation on equipment, $23,000 ($16,000 related to equipment used in factory operations; the remaining $7,000 related to equipment used in selling and administrative activities).
Manufacturing overhead cost applied to jobs, $ ?question mark .
Completed goods cost $228,000 to manufacture.
Sales for the year (all paid in cash) totaled $505,000. The manufacturing cost of these goods was $216,000.
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?
3B. Prepare a journal entry to close Manufacturing Overhead to Cost of Goods Sold.
4. Prepare an income statement. All of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.
