Question
Star Videos, Inc., produces short musical videos for sale to retail outlets. The companys balance sheet accounts as of January 1 are given below. Star
Star Videos, Inc., produces short musical videos for sale to retail outlets. The companys balance sheet accounts as of January 1 are given below.
Star Videos, Inc. | |||||
Balance Sheet | |||||
January 1 | |||||
Assets | |||||
Cash | $ | 78,600 | |||
Accounts receivable | 103,400 | ||||
Inventories: | |||||
Raw materials (film, costumes) | $ | 19,000 | |||
Videos in process | 62,600 | ||||
Finished videos awaiting sale | 84,400 | 166,000 | |||
Prepaid insurance | 9,250 | ||||
Studio and equipment (net) | 610,000 | ||||
Total assets | $ | 967,250 | |||
Liabilities and Stockholders Equity | |||||
Accounts payable | $ | 175,000 | |||
Retained earnings | 792,250 | ||||
Total liabilities and stockholders equity | $ | 967,250 | |||
|
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 companys 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:
Film, costumes, and similar raw materials purchased on account, $216,500.
Film, costumes, and other raw materials issued to production, $225,500 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect).
Utility costs incurred (on account) in the production studio, $87,000.
Depreciation recorded on the studio, cameras, and other equipment, $109,200. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration.
Advertising expense incurred (on account), $135,000.
Salaries and wages paid in cash as follows:
Direct labor (actors and directors) | $ | 95,400 |
Indirect labor (carpenters to build sets, costume designers, and so forth) | $ | 70,000 |
Administrative salaries | $ | 97,200 |
Prepaid insurance expired during the year, $8,100 (70% related to production of videos, and 30% related to marketing and administrative activities).
Miscellaneous marketing and administrative expenses incurred (on account), $13,350.
Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.
Videos that cost $586,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment.
Sales for the year totaled $986,000 and were all on account.
The total cost to produce the videos that were sold according to their job cost sheets was $632,470.
Collections from customers during the year totaled $936,000.
Payments to suppliers on account during the year, $598,000.
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.
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