Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures spec

Question

Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea oil fields. The company uses a job-order costing system that applies manufacturing overhead cost to jobs on the basis of direct labor-hours. Its predetermined overhead rate was based on a cost formula that estimated $342,000 of manufacturing overhead for an estimated allocation base of 950 direct labor-hours. The following transactions took place during the year:

Raw materials purchased on account, $210,000.

Raw materials used in production (all direct materials), $195,000.

Utility bills incurred on account, $61,000 (95% related to factory operations, and the remainder related to selling and administrative activities).

Accrued salary and wage costs:

120,000

Maintenance costs incurred on account in the factory, $56,000

Advertising costs incurred on account, $138,000.

Depreciation was recorded for the year, $86,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).

Rental cost incurred on account, $111,000 (80% related to factory facilities, and the remainder related to selling and administrative facilities).

Manufacturing overhead cost was applied to jobs, $?.

Cost of goods manufactured for the year, $790,000.

Sales for the year (all on account) totaled $1,300,000. These goods cost $820,000 according to their job cost sheets.

The balances in the inventory accounts at the beginning of the year were:

Required:

1. Prepare journal entries to record the preceding transactions.

2. Post your entries to T-accounts. (Don’t forget to enter the beginning inventory balances above.)

3. Prepare a schedule of cost of goods manufactured.

4A. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

4B. Prepare a schedule of cost of goods sold.

5. Prepare an income statement for the year.

Direct labor (1,025 hours) $ 240,000 Indirect labor $ 92,000 Selling and administrative salaries $

120,000

Explanation / Answer

Accounting titles & Explanations Debit Credit a) Raw materials inventory 210,000 Accounts payable 210,000 b) work in process inventory 195,000 Raw materials inventory 195,000 c) manufacturing overhead 57950 utility expense 3050 Accounts payable 61,000 d) work in process inventory 240,000 Manufacturing overhead 92,000 Salary expense 120,000 Salary & wages payable 452,000 e) Manufacturing overhead 56,000 Accounts payable 56,000 f) Advertising expense 138,000 Accounts payable 138,000 g) Manufacturing overhead 64500 Depreciation expense 21500 Accumulated depreciation 86,000 h) Manufacturing overhead 88800 Rent expense 22200 Accounts payable 111,000 i) Work in process inventory 369,000 Manufacturing overhead 369,000 j) finished goods inventory 790,000 Work in process inventory 790,000 k) Accounts receivable 1,300,000 sales 1,300,000 cost of goods sold 820,000 finished goods inventory 820,000 Accounts receivable Sales Beg.bal Beg.bal k. 1,300,000 1,300,000 k. end bal 1,300,000 1,300,000 end bal Raw Materials cost of goods sold Beg.Bal 32,000 Beg.Bal a. 210,000 195,000 b. k. 820,000 End bal 47,000 End bal 820,000 Work in process Manufacturing overhead Beg Bal 23,000 Beg.Bal b. 195,000 790,000 j c. 57950 369,000 i d. 240,000 d. 92,000 i. 369000 e. 56,000 g. 64500 end bal 37,000 h. 88800 9,750 End bal finished goods Advertising expense Beg bal 62,000 Beg.bal j 790,000 820,000 k f. 138,000 End bal 32,000 end bal 138,000 Accumulated Depreciation Utilities expense beg.bal Beg bal g. 86,000 g. c. 3050 End bal 86,000 end bal 3,050 Accounts payable Salaries expense Beg.bal Beg.Bal 210,000 a. d. 120,000 61,000 c. 56,000 e. 138,000 f. 111,000 h. End bal 576,000 end bal 155,000 Depreciation expense Salaries & wages payable Beg.bal Beg.bal g. 21500 452,000 d. End bal 21,500 end bal 452,000 rent expense beg bal h. 22200 End bal 22,200 Schedule of Cost of Goods Manufactured Direct Materials: Beginning raw materials inventory 32,000 Add:purchase of raw materials 210,000 Total raw materials available 242,000 less:Ending raw materials inventory 47,000 Materials used in production 195,000 Direct Labor 240,000 Manufacturing overhead applied to work in process 369000 total manufacturing costs 804,000 Add:Beginning work in process inventory 23,000 827,000 less:Ending work in process inventory 37,000 Cost of goods manufactured 790,000     Schedule of Cost of goods sold Beginning finished goods inventory 62,000 Add:Cost of goods manufactured 790,000 Cost of goods available for sale 852,000 less:ending finished goods inventory 32,000 Unadjusted cost of goods sold 820,000 less:overapplied overhead 9,750 Adjusted cost of goods sold 810,250 Income statement Sales 1,300,000 cost of goods sold 810,250 Gross margin 489,750 Selling and administrative expense Utilities expense 3050 Advertising expense 138,000 Salaries expense 120,000 Depreciation expense 21,500 rent expense 22200 304,750 Net operating income 185,000

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