Gold Nest Company of Guandong China is a familyowned enterpr

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 $85,000 of manufacturing overhead for an estimated activity level of $50,000 direct labor dollars. At the beginning of the year, the inventory balances were as follow:s Raw materials Work in process Finished goods $10,600 $4,600 $8,100 During the year, the following transactions were completed a. Raw materials purchased for cash, $ 169,000 b. Raw materials used in production, $149,000 (materials costing $124,000 were charged directly to jobs; the remaining materials were indirect) C. Cash paid to employees as follows: $ 164,000 $ 196,200 $ 20,000 $ 40,000 Direct labor Indirect labor ales commissions Administrative salaries d. Cash paid for rent during the year was $18,600 ($13,500 of this amount related to factory operations, and the remainder related to selling and administrative activities) e. Cash paid for utility costs in the factory, $15,000 f. Cash paid for advertising, $10,000 g. Depreciation recorded on equipment, $21,000. ($16,000 of this amount related to equipment used in factory operations; the remaining $5,000 related to equipment used in selling and administrative activities.)

Solution

Journal Entries:-

Transaction

General Journal

Debit

Credit

(a)

Raw Materials

169000

Cash

169000

(b)

WIP

124000

Manufacturing O/H

25000

Raw Materials

149000

(c)

WIP

164000

Manufacturing O/H

196200

Sales Commission Exp

20000

Salary Exp

40000

Cash

420200

(d)

Manufacturing O/H

13500

Rent Exp

5100

Cash

18600

(e)

Manufacturing O/H

15000

Cash

15000

(f)

Advertising Exp

10000

Cash

10000

(g)

Manufacturing O/H

16000

Dep Exp

5000

Accumulated Dep

21000

(h)

WIP

278800

Manufacturing O/H

278800

Predetermined O/H Rate = Estimated total mfr OH cost/Estimated total amt of allocation base

        85000/50000 = 1.7

Actual Direct Labour =164000

164000 * 1.7 = 278800

(i)

Finished Goods

227000

WIP

227000

(j)

Cash

500000

Sales

500000

COGS

220000

Finished goods

220000

Raw Materials

Beg. Bal

10600

149000

(b)

(a)

169000

Bal.

30600

WIP

Beg. Bal

4600

227000

(i)

(b)

124000

(c)

164000

(h)

278800

Bal.

344400

Finished Goods

Beg. Bal

8100

220000

(j)

(i)

227000

Bal.

15100

Manufacturing O/H

(b)

25000

278800

(h)

(c)

196200

(d)

13500

(e)

15000

(g)

16000

13100

Bal.

COGS

(j)

220000

Journal Entry to close balance:-

Transaction

General Journal

Debit

Credit

Manufacturing O/h

13100

COGS

13100

Income Statement:-

Sales

500000

Less: COGS (220000 – 13100)

206900

Gross Margin

293100

Less: S & A Exp

Sales commission

20000

Admn Salaries

40000

Rent Exp

5100

Adv Exp

10000

Dep Exp

5000

80100

Net Operating Income

213000

Transaction	General Journal	Debit	Credit
(a)	Raw Materials	169000
	Cash		169000
(b)	WIP	124000
	Manufacturing O/H	25000
	Raw Materials		149000
(c)	WIP	164000
	Manufacturing O/H	196200
	Sales Commission Exp	20000
	Salary Exp	40000
	Cash		420200
(d)	Manufacturing O/H	13500
	Rent Exp	5100
	Cash		18600
(e)	Manufacturing O/H	15000
	Cash		15000
(f)	Advertising Exp	10000
	Cash		10000
(g)	Manufacturing O/H	16000
	Dep Exp	5000
	Accumulated Dep		21000
(h)	WIP	278800
	Manufacturing O/H		278800
	Predetermined O/H Rate = Estimated total mfr OH cost/Estimated total amt of allocation base         85000/50000 = 1.7 Actual Direct Labour =164000 164000 * 1.7 = 278800
(i)	Finished Goods	227000
	WIP		227000
(j)	Cash	500000
	Sales		500000
	COGS	220000
	Finished goods		220000