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Star Videos, Incorporated, produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1 are given below.
Star Videos, Incorporated, produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January 1 are given below. Star Videos, Incorporated Balance Sheet January 1 Assets Cash Accounts receivable Inventories: Raw materials (film, costumes) Videos in process $ 20,200 Finished videos awaiting sale Prepaid insurance Studio and equipment (net) Total assets Liabilities and Stockholders' Equity Accounts payable Retained earnings Total liabilities and stockholders' equity 59,000 82,400 $ 89,000 104,400 161,600 12,350 618,000 $ 985,350 $ 180,000 805,350 $ 985,350 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 company's 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: a. Film, costumes, and similar raw materials purchased on account, $194,500. b. Film, costumes, and other raw materials issued to production, $210,000 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect).
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