Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures spec
ID: 2335763 • 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 $380,000 of manufacturing overhead for an estimated allocation base of 1,000 direct labor-hours. The following transactions took place during the year:
Raw materials purchased on account, $220,000.
Raw materials used in production (all direct materials), $205,000.
Utility bills incurred on account, $63,000 (90% related to factory operations, and the remainder related to selling and administrative activities).
Accrued salary and wage costs:
130,000
Maintenance costs incurred on account in the factory, $58,000
Advertising costs incurred on account, $140,000.
Depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment).
Rental cost incurred on account, $113,000 (90% 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, $810,000.
Sales for the year (all on account) totaled $1,400,000. These goods cost $840,000 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 (1,075 hours) $ 250,000 Indirect labor $ 94,000 Selling and administrative salaries $130,000
Explanation / Answer
1.
*Predetermined overhead rate = Estimated manufacturing overhead/Estimated direct labor hours = $380000/1000 = $380 per direct labor hour
2.
3.
4A.
4B.
5.
Transaction General Journal Debit Credit a. Raw materials inventory 220000 Accounts payable 220000 (To record raw materials purchased on account) b. Work in process inventory 205000 Raw materials inventory 205000 (To record materials requisitioned) c. Manufacturing overhead (90% x $63000) 56700 Utility expense (10% x $63000) 6300 Accounts payable 63000 (To record utility bills incurred) d. Work in process inventory 250000 Manufacturing overhead 94000 Salaries expense 130000 Salaries and wages payable 474000 (To record payment of factory wages) e. Manufacturing overhead 58000 Accounts payable 58000 (To record maintenance costs incurred) f. Advertising expense 140000 Accounts payable 140000 (To record advertising costs incurred) g. Manufacturing overhead (85% x $88000) 74800 Depreciation expense (15% x $88000) 13200 Accumulated depreciation 88000 (To record depreciation for the year) h. Manufacturing overhead (90% x $113000) 101700 Rent expense (10% x $113000) 11300 Accounts payable 113000 (To record rental cost incurred) i. Work in process inventory (1075 x $380)* 408500 Manufacturing overhead 408500 (To record manufacturing overheads applied) j. Finished goods inventory 810000 Work in process inventory 810000 (To record jobs transferred to finished goods) k(1) Accounts receivable 1400000 Sales revenue 1400000 (To record jobs sold on credit) k(2) Cost of goods sold 840000 Finished goods inventory 840000 (To record cost of sales)Related Questions
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