Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures spec
ID: 2330455 • Letter: F
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 $349,800 of manufacturing overhead for an estimated allocation base of 1,060 direct labor-hours. The following transactions took place during the year:
Raw materials purchased on account, $230,000.
Raw materials used in production (all direct materials), $215,000.
Utility bills incurred on account, $65,000 (85% related to factory operations, and the remainder related to selling and administrative activities).
Accrued salary and wage costs:
140,000
Maintenance costs incurred on account in the factory, $60,000
Advertising costs incurred on account, $142,000.
Depreciation was recorded for the year, $90,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).
Rental cost incurred on account, $115,000 (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, $830,000.
Sales for the year (all on account) totaled $1,500,000. These goods cost $860,000 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 (1,135 hours) $ 260,000 Indirect labor $ 96,000 Selling and administrative salaries $140,000
Explanation / Answer
A Estimated manufacturing overhead $349,800 B Direct labor hours 1060 C=A/B Predetermined overhead rate $330 ($/hour) JOURNAL ENTRIE Account Title Debit Credit Raw material inventory $230,000 Accounts payable $230,000 Workin process $215,000 (direct materials) Raw material inventory $215,000 Manufacturing overhead $55,250 (0.85*65000)(Utilities expense) Sales and Administration expenses $9,750 (0.15*65000) Accounts payable $65,000 Workin process $260,000 (direct labor) Manufacturing overhead $96,000 (indirect labor) Selling & Administration expenses $140,000 Salaries and wages payable $496,000 Manufacturing overhead $60,000 (maintenance expense) Accounts payable $60,000 Selling & Administration expenses $142,000 Accounts payable $142,000 Manufacturing overhead $67,500 (0.75*90000)(Depreciation ,factory) Selling & Administration expenses $22,500 (0.25*90000)(Depreciation ,Selling & administration) Accumulated depreciation $90,000 Manufacturing overhead $92,000 (0.8*115000) Selling & Administration expenses $23,000 (0.2*115000) Rent payable $115,000 Work in process $374,550 (1135*330)(applied overhead) Manufacturing overhead $374,550 Finished goods inventory $830,000 (goods manufactured) Work in process $830,000 Accounts Receivable $1,500,000 Sales $1,500,000 Cost of goods sold $860,000 Finished goods inventory $860,000
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