Question: Star Videos, Inc., produces short musical videos
Star Videos, Inc., 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 in complexity of production, the company uses a joborder 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 in 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: a. Film, costumes, and similar raw materials purchased on account, $183,000. b. Film, costumes, and other raw materials issued to production, $210,000 (85% of this material was considered direct to the videos in production, and the other 15% was considered indirect). c. Utility costs incurred (on account) in the production studio, $78,000. d. Depreciation recorded on the studio, cameras, and other equipment, $82,000. Three-fourths of this depreciation related to actual production of the videos, and the remainder related to equipment used in marketing and administration. e. Advertising expense incurred (on account), $131,000. f. Salaries and wages paid in cash as follows: Direct labor (actors and directors)....................................... $84,000 Indirect labor (carpenters to build sets, costume designers, and so forth) ........................................ $105,000 Administrative salaries.......................................................... $95,000 g. Prepaid insurance expired during the year, $7,000 (70% related to production of videos, and 30% related to marketing and administrative activities). h. Miscellaneous marketing and administrative expenses incurred (on account), $9,600. i. Studio (manufacturing) overhead was applied to videos in production. The company recorded 7,250 camera-hours of activity during the year. j. Videos that cost $565,000 to produce according to their job cost sheets were transferred to the finished videos warehouse to await sale and shipment. k. Sales for the year totaled $930,000 and were all on account. l. The total cost to produce the videos that were sold according to their job cost sheets was $610,000. m. Collections from customers during the year totaled $880,000. n. Payments to suppliers on account during the year, $515,000. o. Underapplied or overapplied overhead $ ?. Required: 1. Using Exhibit 3A–2 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 above? 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 above? 4. Using Exhibit 3A–5 as your guide, prepare an income statement for the year. Exhibit3A-2: 
Exhibit3A-3: 
Exhibit3A-4: 
Exhibit3A-5: 
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Star Videos, Inc. Balance Sheet January 1 Assets $ 73,000 96,000 Cash... Accounts receivable. Inventories:. Raw materials (film, costumes) $33,000 Videos in process.... Finished videos awaiting sale. 47,000 78,000 Prepaid insurance.. Studio and equipment (net). Total assets.... 158,000 8,000 530,000 $865,000 Liabilities and Stockholders' Equity Accounts payable . Retained earnings. Total liabilities and Stockholders' Equity $150,000 715,000 $865,000 ЕXHIBIT ЗА-2 Sapphire Company: Completed Transaction Analysis A B H K Sapphire Company Transaction Analysis 1 2 3 For the Month Ended January 31 Raw Work in Finished Manufacturing Prepaid Асcounts Retained 5 Transactions Cash Materials Process Goods Overhead Expenses PP&E (net) = Payable Earnings S 15,000 S 8,000 $ 5,000 $ 13,000 S $ 3,000 $240,000 = $ 4,000 $280,000 Beginning balances @ 1/1 7 (a) Raw material purchases 80,000 80,000 8 (b) Raw materials used in production (78,000) 70,000 9 (c) Salaries and wages 8,000 45,000 (135,000) 68,000 (22,000) 10 (d) Utility costs 15,000 15,000 (12,000) (18,000) 11 (e) Depreciation 12 (f) Advertising 13 (8) Expiration of prepaid insurance 14 (h) Manufacturing overhead applied 15 (i) Cost of goods manufactured 16 (G) Sales 17 (k) Cost of goods sold 28,000 (40,000) = (18,000) 800 (1,000) (200) 102,500 (102,500) (235,000) 235,000 320,000 320,000 (245,000) (245,000) 18 (1) Payments to creditors (92,000) (92,000) 5,700 $ 7,000 $308,500 19 (m) Overapplied overhead 5,700 Ending balances @ 1/31 $ 90,000 $ 10,000 $ 10,500 S 3,000 $ $ 2,000 $200,000 20 21 Exhibit 3A-1 Exhibit 3A-2 Exhibit 3A-3 Exhibit 3A-4 Exhibit 3A-5 ЕXHIBIT ЗА-3 Sapphire Company: Schedule of Cost of Goods Manufactured 1 Sapphire Company 2 Schedule of Cost of Goods Manufactured 3 For the Month Ended January 31 5 Direct materials: 6 Beginning raw materials inventory (D6) 7 Add: Purchases of raw materials (D7) 8 Total raw materials available 9 Deduct: Ending raw materials inventory (D20) $ 8,000 80,000 88,000 10,000 10 Raw materials used production 11 Deduct: Indirect materials included in manufacturing overhead (G8) 78,000 8,000 $ 70,000 12 Direct labor (E9) 68,000 13 Manufacturing overhead applied to work in process (E14) 102,500 14 Total manufacturing costs 240,500 15 Add: Beginning work in process inventory (E6) 5,000 16 245,500 17 Deduct: Ending work in process inventory (E20) 10,500 18 Cost of goods manufactured $ 235,000 19 Exhbt 3A- Exhbr 3A-2 Exhibit 3A-3 Exhbit 3A4 Exhbt 3A-5 B. A B Sapphire Company Schedule of Cost of Goods Sold 1 2 3 For the Month Ended January 31 5 Beginning finished goods inventory (F6) 6 Add: Cost of goods manufactured (F15) 7 Cost of goods available for sale $ 13,000 235,000 248,000 8 Deduct: Ending finished goods inventory (F20) 3,000 9 Unadjusted cost of goods sold 10 Deduct: Overapplied overhead (G19) 245,000 5,700 $ 239,300 11 Adjusted cost of goods sold 12 Ener 3A Ehbt 342 Exhbt 3A-3 Exhibit 34-4 Evhbt 3A5 A B 1 Sapphire Company Income Statement For the Month Ended January 31 $ 320,000 5 Sales (L16) 6 Cost of goods sold 7 Gross margin 239,300 80,700 8 Selling and administrative expenses: 9 Salaries expense (L9) 10 Depreciation expense (L11) 11 Advertising expense (L12) 12 Insurance expense (L13) $ 22,000 12,000 18,000 200 52,200 13 Net operating income 28,500 14 Eehbr 34-1 Exhiet 3A-2 Exhbt 3A-3 Ehbt 344 Exhibit 3A-5 23
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