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				$	87,000
Accounts receivable					107,200
Inventories:
Raw materials (film, costumes)	$	15,800
Videos in process		54,600
Finished videos awaiting sale		94,400			164,800
Prepaid insurance					11,150
Studio and equipment (net)					582,000
Total assets				$	952,550
Liabilities and Stockholders’ Equity
Accounts payable				$	231,000
Retained earnings					721,550
Total liabilities and stockholders’ equity				$	952,550

 

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, $199,000.

2. Film, costumes, and other raw materials issued to production, $207,000 (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, $78,800.

4. Depreciation recorded on the studio, cameras, and other equipment, $114,000. 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), $179,000.

6. Salaries and wages paid in cash as follows:

 

Direct labor (actors and directors)	$	91,200
Indirect labor (carpenters to build sets, costume designers, and so forth)	$	83,500
Administrative salaries	$	112,200

 

1. Prepaid insurance expired during the year, $9,300 (70% related to production of videos, and 30% related to marketing and administrative activities).

2. Miscellaneous marketing and administrative expenses incurred (on account), $10,650.

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 $538,000 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 $948,000 and were all on account. 

6. The total cost to produce the videos that were sold according to their job cost sheets was $581,110.

7. Collections from customers during the year totaled $898,000.

8. Payments to suppliers on account during the year, $584,000.

9. Underapplied or overapplied overhead $__?__.

 

Required:

1. Prepare a transaction analysis that records all of the above transactions.

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

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

4. Prepare an income statement for the year.

Answer 1