Gold Nest Company of Hong Kong is a family-owned enterprise that makes souvenirs for the tourist market. The company sells through an extensive network of trading companies that receive commissions on their sales. Transactions occur in Hong Kong dollars ($). The company uses a job-order costing system in which overhead is applied to jobs on the basis of direct labour cost. It budgeted $330,000 of manufacturing overhead and estimated direct labour cost to be $200,000 in total this fiscal year. On July 1, Page 178 the start of the company's fiscal year, inventory account balances were as follows: Raw Materials $25,000 Work in Process $10,000 Finished Goods $40,000 During the year, the following transactions were completed: a. Raw materials were purchased on account: $275,000. b. Raw materials were requisitioned for use in production: $280,000 (materials costing $220,000 were chargeable directly to jobs; the remaining materials were indirect). c. Costs for employee services were incurred as follows: Direct labour $180,000 Indirect labour $ 72,000 Sales commissions $ 63,000 Administrative salaries $ 90,000 d. Rent during the year: $75,000 ($60,000 of this amount related to factory operations, and the remainder related to administrative activities). e. Utility costs were incurred in the factory: $57,000. f. Advertising costs were incurred: $14,000. g. Depreciation was recorded on equipment: $100,000 ($88,000 of this amount was on equipment used in factory operations; the remaining $12,000 was on equipment used in selling and administrative activities). h. Manufacturing overhead cost was applied to jobs: $___? i. Goods that had cost $675,000 to manufacture according to their job cost sheets were completed. j. Sales (all on account) to customers during the year totalled $1,250,000. These goods cost $700,000 to manufacture according to their job cost sheets. Required: 1. Prepare journal entries to record the transactions for the year. 2. Prepare T-accounts for inventories, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these T-accounts (don't forget to enter the opening balances in your inventory accounts). Compute an ending balance in each account. 3. Is Manufacturing Overhead underapplied or overapplied for the year? Prepare a journal entry to properly dispose of any balance in the Manufacturing Overhead account. If overhead is overapplied, use the entire cost of manufacturing to allocate the overapplied portion to the appropriate accounts. 4. Prepare an income statement for the year. (Do not prepare a schedule of cost of goods manufactured; all of the information needed for the income statement is available in the journal entries and T-accounts you have prepared.)
