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 ol 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 $373,700 of manufacturing overhead for an estimated allocation base of 1,010 direct labor-hours. The following transactions took place during the year a. Raw materials purchased on account, $255,000 b. Raw materials used in production (all direct materials), $240,000. c Utility bills incurred on account, $70,000 (95% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs: $ 285,00e 101,00e $ 165,00e t labor (1,885 hours) Indirect labor Selling and administrative salaries e. Maintenance costs incurred on account in the factory, $65,00o f. Advertising costs incurred on account, $147000. g. Depreciation was recorded for the year, $83,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment)

Explanation / Answer

1.

Predetermined overhead rate = Estimated manufacturing overhead/Estimated direct labor hours = $373700/1010 = $370 per direct labor hour

2.

3.

4A.

Note: This transaction has not been posted to the T-accounts since not required by the question.

4B.

5.

Transaction General Journal Debit Credit a. Raw materials inventory 255000 Accounts payable 255000 (To record raw materials purchased on account) b. Work in process inventory 240000 Raw materials inventory 240000 (To record materials requisitioned) c. Manufacturing overhead 66500 Utility expense 3500 Accounts payable 70000 (To record utility bills incurred) d. Work in process inventory 285000 Manufacturing overhead 101000 Salaries expense 165000 Salaries and wages payable 551000 (To record payment of factory wages) e. Manufacturing overhead 65000 Accounts payable 65000 (To record maintenance costs incurred) f. Advertising expense 147000 Accounts payable 147000 (To record advertising costs incurred) g. Manufacturing overhead 66400 Depreciation expense 16600 Accumulated depreciation 83000 (To record depreciation for the year) h. Manufacturing overhead 91800 Rent expense 16200 Accounts payable 108000 (To record rental cost incurred) i. Work in process inventory 401450 Manufacturing overhead 401450 (To record manufacturing overheads applied) j. Finished goods inventory 880000 Work in process inventory 880000 (To record jobs transferred to finished goods) k(1) Accounts receivable 1750000 Sales revenue 1750000 (To record jobs sold on credit) k(2) Cost of goods sold 910000 Finished goods inventory 910000 (To record cost of sales)

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