Reference no: EM132593414

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 a job-order 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 $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:

Raw Materials $25,000

Work in process $ 10,000

Finished goods $ 40,000

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).

c. Costs for employee services were incurred as follows:

Direct labor $ 180,000

Indirect labor $72,000

Sales commissions $63,000

Administrative Salaries $90,000

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.

f. Advertising costs incurred, $140,000.

g. Depreciation recorded on equipment, $100,000. ($88,000 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.

i. Goods that had cost $675,000 to manufacture according to their job cost sheets were completed.

j. 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:

Question 1. Prepare journal entries to record the transactions for the year.

Question 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).

Question 3A. Is Manufacturing Overhead under-applied or over-applied for the year?

Question 3B. Prepare journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.