PART 1
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 ajoborder 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 $94,500 of manufacturing overhead for an estimated activity level of $45,000 direct labor dollars. At the beginning of the year, the inventory balances were as follows: Raw materials $ 19,299 Work in process $ 4,699 Finished goods $ 8,999 During the year, the following transactions were completed: a. Raw materials purchased on account, $163,000. b. Raw materials used in production, $146,000 (materials costing $121,000 were charged directly tojobs; the remaining materials were indirect), c. Costs for employee services were incurred as follows: Direct labor $ 155,999 Indirect labor $ 244,599 Sales commissions $ 26,999 Administrative salaries $ 42,999 ' She also determined that the average order size for the Basic and Advanced models is 400 units and 50 units, respectively. The molding machines require a setup for each order. One setup hour is required for each customer order ofthe Basic model and three hours are required to setup for an order of the Advanced model. The company pays a sales commissions of 5% for the Basic model and 10% for the Advanced model. Its traceable fixed advertising costs include $150,000 for the Basic model and $200,000 for the Advanced model. The remainder ofthe company's selling and administrative costs are organizationsustaining in nature. Using the additional information provided by the production manager, calculate: a. An activity rate for each activity cost pool. b. The total manufacturing overhead cost allocated to the Basic model and the Advanced model using the activitybased approach. c. The total selling and administrative cost traced to the Basic model and the Advanced model using the activity-based approach. 4. Using your activitybased cost assignments from requirement 3, prepare a contribution format segmented income statement that is adapted from Exhibit 68. (Hint: Organize all of the company's costs into three categories: variable expenses, traceable fixed expenses, and common fixed expenses.) 5. Using your contribution format segmented income statement from requirement 4, calculate the breakeven point in dollar sales for the Advanced model. \fd. Rent for the year was $18,200 ($13,400 of this amount related to factory operations, and the remainder related to selling and administrative activities). e. Utility costs incurred in the factory, $10,000. f. Advertising costs incurred, $14,000. . Depreciation recorded on equipment, $24,000. ($18,000 of this amount related to equipment used in factory operations; the remaining $6,000 related to equipment used in selling and administrative activities.) . Manufacturing overhead cost was applied to jobs, $ ? . . Goods that had cost $229,000 to manufacture according to theirjob cost sheets were completed. . Sales for the year (all paid in cash) totaled $504,000. The total cost to manufacture these goods according to theirjob cost sheets was $217,000. L_,_,:T (.0 Required: 1. Preparejournal entries to record the transactions for the year. 2. Prepare Taccounts for each inventory account, Manufacturing Overhead, and Cost of Goods Sold. Post relevant data from your journal entries to these Taccounts (don't forget to enter the beginning balances in your inventory accounts). 3A. Is Manufacturing Overhead underapplied or overapplied for the year? 33. 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 thejournal entries and Taccounts you have prepared. \fThe following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash $ 7,266 Accounts receivable $ 18,866 Inventory $ 37,866 Building and equipment, net $ 123,666 Accounts payable $ 22,425 Common stock $ 156,666 Retained earnings $ 14,975 ' a. The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) $ 47,666 April $ 63,666 May $ 68,666 June $ 93,666 July $ 44,999 c. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales. d. Each month's ending inventory should equal 80% of the following month's budgeted cost of goods sold e. Onehalf ofa month's inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases ofinventory. f. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,000 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $927 per month (includes depreciation on new assets). 9. Equipment costing $1,200 will be purchased for cash in April. h. Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Required: Using the preceding data: 1. Complete the schedule of expected cash collections. 2. Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases. 3. Complete the cash budget. 4. Prepare an absorption costing income statement for the quarter ended June 30. 5. Prepare a balance sheet as of June 30. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 H Required 5 Complete the schedule of expected cash collections. ---- --- l-a $ Required 2 > Required 1 Required 2 Required 3 Required 4 Required 5 Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases. Budgeted cost of goods sold $ 47 250 $51,000 Add desired ending merchandise inventory 40,800 Total needs 88,050 51,000 Less beginning merchandise inventory 37,800 Required purchases $ 50,250 $51,000 Budgeted cost of goods sold for April 2 $63,000 sales X 75% = $47,250. Add desired ending inventory for April = $51,000 x 80% = $40,800. March purchases $ 22,425 April purchases 25,125 25,125 May purchases June purchases Total disbursements $ 47,550 $25,125 Required 1 Required 2 Required 3 Required 4 Required 5 Complete the cash budget. (Cash deciency, repayments and interest should be indicated by a minus sign.) Beginning cash balance Add collections from customers Total cash available Less cash disbursements: For inventory For expenses For equipment Total cash disbursements Excess (deciency) of cash available over disbursements Financing: Borrowings Repayments Interest Total nancing Ending cash balance 0 $ 0 $ 0 Required 1 Required 2 Required 3 Required 4 Required 5 Prepare a balance sheet as of June 30. Current assets: Total current assets Total assets Liabilities and Stockholders' Equity Stockholders' equity: Total liabilities and stockholders' equity Prepare journal entries to record the transactions for the year. (If no entry is required for a transaction/event, select "No journal entry required\" in the first account eld. Do not round intermediate calculations.) View transaction list Journal entry worksheet Raw materials purchased on account, $163,000. Note: Enter debits before credits. Record entry Clear entry View general journal \fP pare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. (If no entry is required for a 392539.59EF!9E
