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				$	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

7. Prepaid insurance expired during the year, $7,450 (70% related to production of videos, and 30% related to marketing and administrative activities).
8. Miscellaneous marketing and administrative expenses incurred (on account), $13,850.
9. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.
10. 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.
11. Sales for the year totaled $954,000 and were all on account.
12. The total cost to produce the videos that were sold according to their job cost sheets was $623,910.
13. Collections from customers during the year totaled $904,000.
14. Payments to suppliers on account during the year, $608,000.
15. 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.

Answer 1

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.