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 $380,000 of manufacturing overhead for arn estimated allocation base of 1,000 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $275,000. b. Raw materials used in production (all direct materials), $260,000. c Utility bills incurred on account, $74,000 (95% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs: Direct labor (1,100 hours) Indirect labor Selling and administrative salaries $ 305,000 s 105,000 $ 185,000

Explanation / Answer

Solution:

1. Preparing the Journal Entries to Record the Preceding Transactions:

2. Posting the Entries to T-Accounts:

3. Preparing a schedule of Cost of Goods Manufactured:

4 A. Preparing a Journal Entry to Close any Balance in the Manufacturing Overhead Account to Cost of Goods Sold:

4 B. Preparing a Schedule of Cost of Goods Sold:

Froya Fabrikker A/S

Schedule of Cost of Goods Sold

5. Preparing an Income Statement for the Year:

Event Account title and Explanation Debit Credit a Raw material 275000 Accounts payable 275000 b Work in process 260000 Raw material 260000 c Utilities expense 74000 Accounts payable 74000 Factory overhead 70300 Utilities expese 70300 d Salaries expense 595000 Salaries payable 595000 Work in process 305000 Factory overhead 105000 Salaries expense 410000 e Factory overhead 69000 Accounts payable 69000 f Advertising expense 151000 Accounts payable 151000 g Depreciation expense 87000 Accumulated depreciation 87000 Factory overhead 69600 Depreciation expense 69600 h Rent expense 112000 Accounts payable 112000 Factory overhead 95200 Rent expense 95200 i Work in process 418000 Factory overhead 418000 j Finished goods 920000 Work in process 920000 k Accounts receivable 1950000 Sales revenue 1950000 Cost of goods sold 950000 Finished goods 950000

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