Supreme Videos, Incorporated, produces short musical videos for sale to retail outlets. The company’s balance sheet accounts as of January 1 are given below.
Because the videos differ in length and 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 based on camera-hours of activity. The company’s predetermined overhead rate for the year is based on a cost formula that estimated $240,000 in manufacturing overhead for an estimated allocation base of 6,000 camera-hours. The following transactions occurred during the year:
(attached)
a. Film, costumes, and similar raw materials purchased on account, $205,000.
b.Film, costumes, and other raw materials used in production, $220,000 (80% of this material was direct to the videos in production, and the other 20% was indirect).
c. Utility costs incurred in the production studio, $92,000.
d. Depreciation on the studio, cameras, and other equipment, $104,000. Three-fourths of this depreciation related to production of the videos, and the remainder related to equipment used in marketing and administration.
e. Advertising expense incurred on account, $150,000.
f. Costs for salaries and wages were incurred as follows:
- direct labor (actors and directors) 102000
- indirect labor (carpenters to build sets, costume designers, and so forth) 130000
- administrative salaries 115000
g. Prepaid insurance expired during the year, $9,000 (75% related to production of videos, and 25% related to marketing and administrative activities).
h. Miscellaneous marketing and administrative expenses incurred, $10,600.
i. Studio (manufacturing) overhead was applied to videos in production. The company used 9,000 camera-hours during the year.
j. Videos that cost $570,000 to produce were transferred to the finished videos warehouse.
k. Sales for the year totaled $965,000 and were all on account. The total cost to produce these videos was $620,000.
l. Collections from customers during the year totaled $870,000.
m. Payments to suppliers on account during the year, $520,000; payments to employees for salaries and wages, $327,000.
Required:
1.Prepare a T-account for each account on the company’s balance sheet and enter the beginning balances.
2.Record the transactions in the T-accounts. Key your entries to the letters (a) through (m) above.
3.Is the Studio (manufacturing) Overhead account underapplied or overapplied? By how much?
4.Prepare a schedule of cost of goods manufactured.
5.Prepare a schedule of cost of goods sold.
6.Prepare an income statement.
