Reference no: EM132530597

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 $84,000 of manufacturing overhead for an estimated activity level of $40,000 direct labor dollars.

At the beginning of the year, the inventory balances were as follows:

Raw materials $ 10,500 Work in process $ 4,500

Finished goods $ 8,700

During the year, the following transactions were completed:

Raw materials purchased on account, $ 164,000.
Raw materials used in production, $148,000 (materials costing $128,000 were charged directly to jobs; the remaining materials were indirect).

Costs for employee services were incurred as follows:

Direct labor $ 176,000

Indirect labor $ 290,500

Sales commissions $ 30,000

Administrative salaries $ 42,000

Rent for the year was $18,500 ($13,800 of this amount related to factory operations, and the remainder related to selling and administrative activities).

Utility costs incurred in the factory, $14,000.

Advertising costs incurred, $12,000.

Depreciation recorded on equipment, $22,000. ($18,000 of this amount related to equipment used in factory operations; the remaining $4,000 related to equipment used in selling and administrative activities.)

Record the manufacturing overhead cost applied to jobs.

Goods that had cost $228,000 to manufacture according to their job cost sheets were completed.

Sales for the year (all paid in cash) totaled $499,000. The total cost to manufacture these goods according to their job cost sheets was $218,000.

Required:

Question 1: Is Manufacturing Overhead underapplied or overapplied for the year? what is the journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

Question 2: What is the income statement for the year.