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Star Videos, Inc., produces short musical videos for sale to retail outlets. The company’s balance sheet...

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 $ 89,200
Accounts receivable 106,600
Inventories:
Raw materials (film, costumes) $ 13,400
Videos in process 47,400
Finished videos awaiting sale 80,400 141,200
Prepaid insurance 8,350
Studio and equipment (net) 610,000
Total assets $ 955,350
Liabilities and Stockholders’ Equity
Accounts payable $ 238,000
Retained earnings 717,350
Total liabilities and stockholders’ equity $ 955,350

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:

  1. Film, costumes, and similar raw materials purchased on account, $229,000.
  2. Film, costumes, and other raw materials issued to production, $230,500 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect).
  3. Utility costs incurred (on account) in the production studio, $92,600.
  4. Depreciation recorded on the studio, cameras, and other equipment, $104,400. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration.
  5. Advertising expense incurred (on account), $143,000.
  6. Salaries and wages paid in cash as follows:
Direct labor (actors and directors) $ 96,000
Indirect labor (carpenters to build sets, costume designers, and so forth) $ 75,500
Administrative salaries $ 103,000
  1. Prepaid insurance expired during the year, $7,450 (70% related to production of videos, and 30% related to marketing and administrative activities).
  2. Miscellaneous marketing and administrative expenses incurred (on account), $13,850.
  3. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.
  4. Videos that cost $578,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment.
  5. Sales for the year totaled $954,000 and were all on account.
  6. The total cost to produce the videos that were sold according to their job cost sheets was $623,910.
  7. Collections from customers during the year totaled $904,000.
  8. Payments to suppliers on account during the year, $608,000.
  9. Underapplied or overapplied overhead $__?__.
Star Videos, Inc.
Transaction Analysis
For the Year Ended December 31
Cash Accounts Receivable Raw Materials Videos in Process Finished Goods Manufacturing Overhead Prepaid Insurance Studio & Equipment (net) = Accounts Payable Retained Earnings
Beginning balance @1/1 $89,200 $106,600 $13,400 $47,400 $80,400 $8,350 $610,000 = $238,000 $717,350
(a) Raw material purchases =
(b) Raw materials used =
(c) Utility costs =
(d) Depreciation charges =
(e) Advertising =
(f) Salaries & wages =
(g) Prepaid insurance =
(h) Miscellaneous marketing =
(i) Applied overhead =
(j) Transfer completed videos to finished goods =
(k) Sales =
(l) Transfer finished goods to cost of goods sold =
(m) Cash collections from customers =
(n) Payment to suppliers =
(o) =
Ending balances @ 12/31 =

Prepare a schedule of cost of goods manufactured for the year.

Prepare a schedule of cost of goods sold for the year.

Prepare an income statement for the year.

Solutions

Expert Solution

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.

Prepare a schedule of cost of goods manufactured for the year.

Prepare a schedule of cost of goods sold for the year.

Prepare an income statement for the year.


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