Gold Nest Company of Guandong, China, is a family-owned enterprise that 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 in which overhead is applied to jobs on the basis of direct labor cost. Its predetermined overhead rate is based on a cost formula that estimated $330,000 of manufacturing overhead for an estimated activity level of $200,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows:
|Work in process||$||10,000|
During the year, the following transactions were completed:
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 for the year?
3B. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.
4. Prepare an income statement for the year. (All of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.)
|predetermined overhead rate =||330,000/200,000|
|No.||Accounting titles & Explanations||debit||Credit|
|a)||Raw materials inventory||275,000|
|b)||work in process inventory||220,000|
|Raw materials inventory||280,000|
|c)||Work in process inventory||180,000|
|Sales commission expense||63,000|
|h)||work in process inventory||297000|
|i)||finished goods inventory||675,000|
|work in process inventory||675,000|
|cost of goods sold||700,000|
|finished goods inventory||700,000|
|Raw materials||Work in process|
|cost of goods sold|
|3a)||Manufacturing overhead is over applied|
|Account titles & Explanations||Debit||Credit|
|Cost of goods sold||7,000|
|less : cost of goods sold||693,000|
|less:Selling & administrative expense|
|Net operating income||247,000|