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 the 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 Tate 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 $ 25,000 Haw materials Work in process Finished goods $10,000 $ 40,00 During the year, the following transactions were completed a. Raw materials purchased on account. $275,000 b. Raw materials used in production, $280,000 (materials costing $220,000 were charged directly to jobs the remaining materials were indirect) Costs for employee services were incurred as follows: Direct labor Indirect labor Sales commissions Administrative salaries $ $ 72, cee 63.000 90,000 5 d. Rent for the year was $18,000 ($13,000 of this amount related to factory operations, and the remainder related to selling and administrative activities). e Utility costs incurred in the factory, $57.000 Advertising costs incurred, $140.000. Depreciation recorded on equipment, $100,000. (588,000 of this amount related to equipment used in factory operations, the remaining $12,000 related to equipment used in selling and administrative activities.) h. Record the manufacturing overhead cost applied to jobs. Goods that had cost $675,000 to manufacture according to their job cost sheets were completed - Sales for the year (all paid in cash) totaled $1,250,000. The total cost to manufacture these goods according to their job cost sheets was $700.000 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 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.)
