Supreme Videos, Inc., produces short musical videos for sale to retail outlets. The company’s balance sheet accounts as of January 1, are given below.

Supreme Videos, Inc. Balance Sheet January 1
Assets
Current assets:
Cash				$	79,000
Accounts receivable					118,000
Inventories:
Raw materials (film, costumes)	$	46,000
Videos in process		24,000
Finished videos awaiting sale		97,000			167,000
Prepaid insurance					12,200
Total current assets					376,200
Studio and equipment		762,000
Less accumulated depreciation		226,000			536,000
Total assets				$	912,200
Liabilities and Stockholders' Equity
Accounts payable				$	121,200
Capital stock	$	505,000
Retained earnings		286,000			791,000
Total liabilities and stockholders' equity				$	912,200

Because the videos differ in length and in 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 on the basis of 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 5,000 camera-hours. The following transactions occurred during the year:

1. Film, costumes, and similar raw materials purchased on account, $192,000.
2. Film, costumes, and other raw materials used in production, $207,000 (80% of this material was considered direct to the videos in production, and the other 20% was considered indirect).
3. Utility costs incurred on account in the production studio, $79,000.
4. Depreciation recorded on the studio, cameras, and other equipment, $91,000. Three-fourths of this depreciation related to production of the videos, and the remainder related to equipment used in marketing and administration.
5. Advertising expense incurred on account, $137,000.
6. Costs for salaries and wages were incurred on account as follows:

Direct labor (actors and directors)	$	89,000
Indirect labor (carpenters to build sets, costume designers, and so forth)	$	117,000
Administrative salaries	$	102,000

7. Prepaid insurance expired during the year, $7,700 (75% related to production of videos, and 25% related to marketing and administrative activities).
8. Miscellaneous marketing and administrative expenses incurred on account, $9,300.
9. Studio (manufacturing) overhead was applied to videos in production. The company used 7,000 camera-hours during the year.
10. Videos that cost $557,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment.
11. Sales for the year totaled $939,000 and were all on account. The total cost to produce these videos according to their job cost sheets was $607,000.
12. Collections from customers during the year totaled $857,000.
13. Payments to suppliers on account during the year, $507,000; payments to employees for salaries and wages, $292,000.

Required:

1. Prepare a T-account for each account on the company’s balance sheet and enter the beginning balances.

2. Record the transactions directly into the T-accounts. Key your entries to the letters (a) through (m) above.

3. Is the Studio (manufacturing) Overhead account underapplied or overapplied for the year? 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 for the year.

Answer rating: 100% (QA)

Req 12 Req 3 Manufacuting overhead was Overapplied by 22550 for the year Req 4 Supreme Videos Inc Schedule of Cost of Goods Manufactured Direct Materials Beginning raw materials 46000 Add Purchase of ... View the full answer