Chapter 3.A, Problem 5P

PROBLEM 3A-5 Transaction Analysis LO3-5

Star Videos, Inc., produces short musical videos for sale to retail outlets. The company's balance sheet accounts as of January⁷1 are given below.

Because the videos differ in length and in complexity⁷ 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 m 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:

Required:

1. Using Exhibit 3A-1 as your guide, prepare a transaction analysis that records all of the above transactions. Calculate the ending balances at December 31 for all balance sheet accounts.
2. Using Exhibit 3A-3 as your guide, prepare a schedule of cost of goods manufactured for the year. If done correctly', your cost of goods manufactured should equal what amount mentioned in the transactions above⁹
3. Using Exhibit 3A-4 as your guide, prepare a schedule of cost of goods sold for the year. If done correctly', your unadjusted cost of goods sold should equal what amount mentioned in the transactions above⁹
4. Using Exhibit 3A-5 as your guide, prepare an income statement for the year.

1. Film, costumes, and similar raw materials purchased on account SI83,000.
2. Film, costumes, and other raw materials issued to production, S210,000 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect).
3. Utility costs incurred (on account) in the production studio, S78,000.
4. Depreciation recorded on the studio, cameras, and other equipment, S82,000. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration
   
5. Advertising expense incurred (on account), S13L000.
6. Salaries and wages paid in cash as follows:

Prepaid insurance expired during the year, S7,000 (70% related to production of videos, and 30% related to marketing and administrative activities).

Miscellaneous marketing and administrative expenses incurred (on account), S9,600.

Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year.

Videos that cost S565,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment.

Sales for the year totaled S930,000 and were all on account.

The total cost to produce the videos that were sold according to their job cost sheets was S610,000.

Collections from customers during the year totaled S880,000.

Payments to suppliers on account during the year, S515,000.

Underapplied or overapplied overhead S ? .