Star Videos, Inc., produces short musical videos for sale toretail outlets. The company’s balance sheet accounts as of January1 are given below.
| Star Videos, Inc. |
| Balance Sheet |
| January 1 |
| Assets | | | | | |
| Cash | | | | $ | 92,000 |
| Accounts receivable | | | | | 115,600 |
| Inventories: | | | | | |
| Raw materials (film, costumes) | $ | 17,800 | | | |
| Videos in process | | 60,200 | | | |
| Finished videos awaiting sale | | 91,200 | | | 169,200 |
| Prepaid insurance | | | | | 12,600 |
| Studio and equipment (net) | | | | | 603,000 |
| Total assets | | | | $ | 992,400 |
| Liabilities and Stockholders’ Equity | | | | | |
| Accounts payable | | | | $ | 211,000 |
| Retained earnings | | | | | 781,400 |
| Total liabilities and stockholders’ equity | | | | $ | 992,400 |
|
Because the videos differ in length and in complexity ofproduction, the company uses a job-order costing system todetermine the cost of each video produced. Studio (manufacturing)overhead is charged to videos on the basis of camera-hours ofactivity. The company’s predetermined overhead rate for the year($40 per camera-hour) is based on a cost formula that estimated$280,000 in manufacturing overhead for an estimated allocation baseof 7,000 camera-hours. Any underapplied or overapplied overhead isclosed to cost of goods sold. The following transactions wererecorded for the year:
- Film, costumes, and similar raw materials purchased on account,$208,500.
- Film, costumes, and other raw materials issued to production,$219,500 (85% of this material was considered direct to the videosin production, and the other 15% was considered indirect).
- Utility costs incurred (on account) in the production studio,$81,600.
- Depreciation recorded on the studio, cameras, and otherequipment, $90,000. Three-fourths of this depreciation related toactual production of the videos, and the remainder related toequipment used in marketing and administration.
- Advertising expense incurred (on account), $155,500.
- Salaries and wages paid in cash as follows:
| | |
| Direct labor (actors and directors) | $ | 99,200 |
| Indirect labor (carpenters to build sets, costume designers,and so forth) | $ | 100,500 |
| Administrative salaries | $ | 102,400 |
|
- Prepaid insurance expired during the year, $10,050(70% related to production of videos, and 30% related to marketingand administrative activities).
- Miscellaneous marketing and administrative expenses incurred(on account), $10,350.
- Studio (manufacturing) overhead was applied to videos inproduction. The company recorded 7,250 camera-hours of activityduring the year.
- Videos that cost $548,000 to produce according to their jobcost sheets were transferred to the finished videos warehouse toawait sale and shipment.
- Sales for the year totaled $1,060,000 and were all onaccount.
- The total cost to produce the videos that were sold accordingto their job cost sheets was $591,810.
- Collections from customers during the year totaled$1,010,000.
- Payments to suppliers on account during the year,$585,000.
- Underapplied or overapplied overhead $__?__.
Required:
1. Prepare a transaction analysis that records all of the abovetransactions.
2. Prepare a schedule of cost of goods manufactured for theyear.
3. Prepare a schedule of cost of goods sold for the year.
4. Prepare an income statement for the year.
