Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures spec
ID: 2335875 • 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 $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
1. Prepare journal entries to record the preceding transactions.
No:
General Journal
Debit
Credit
a
Raw Materials
$210,000
Accounts Payable
$210,000
b
Work in progress
$195,000
Raw materials
$195,000
c
Manufacturing Overhead
$57,950
Utilities Expense
$3,050
Accounts Payable
$61,000
d
Work in Process
$240,000
Manufacturing Overhead
$92,000
Salaries Expense
$120,000
Salaries and 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
$64,500
Depreciation Expense
$21,500
Accumulated Depreciation
$86,000
h
Manufacturing Overhead
$88,800
Rent Expense
$22,200
Accounts Payable
$111,000
i
Work in Process
$369,000
Manufacturing Overhead
(Working Note 1)
$369,000
j
Finished Goods
$790,000
Work in Process
$790,000
K(a)
Accounts Receivable
$1,300,000
Sales
$1,300,000
K(b)
Cost of Goods Sold
$820,000
Finished Goods
$820,000
Working Note: 1
Predetermined Overhead Rate = Estimated total manufacturing overhead cost
Estimated total amount of the allocation base
= $342,000 / 950 DLHs
= $360 per DLH (Direct labor Hour)
1,025 actual DLH * $360 per DLH = $369,000
2. Post your entries to T-accounts. (Don’t forget to enter the beginning inventory balances above.)
Accounts Receivable
Sales
(k a)
1,300,000
(k)
1,300,000
Raw Materials
Cost of Goods Sold
Bal.
32,000
195,000
(k b)
820,000
(a)
210,000
(b)
Bal.
47,000
Work in Process
Manufacturing Overhead
Bal.
23,000
(j)
790,000
(c)
57,950
(i)
369,000
(b)
195,000
(d)
92,000
(d)
240,000
(e)
56,000
(i)
369,000
(g)
64,500
Bal.
37,000
(h)
88,800
Bal.
9,750
Finished Goods
Advertising Expense
Bal.
62,000
(k)
820,000
(f)
138,000
(j)
790,000
Bal.
32,000
Accumulated Depreciation
Utilities Expense
(g)
86,000
(c)
3,050
Accounts Payable
Salaries Expense
(a)
210,000
(d)
120,000
(c)
61,000
(e)
56,000
Depreciation Expense
(f)
138,000
(g)
21,500
(h)
111,000
Salaries & Wages Payable
Rent Expense
(d)
452,000
(h)
22,200
3. Prepare a schedule of cost of goods manufactured.
Froya Fabrikker A/S
Schedule of Cost of Goods Manufactured
Direct materials:
Raw materials inventory, beginning............................
$ 32,000
Purchases of raw materials...........................................
$ 210,000
Materials available for use...........................................
$ 242,000
Raw materials inventory, ending.................................
$ 47,000
Materials used in production.......................................
$195,000
Direct labor......................................................................
$ 240,000
Manufacturing overhead applied to work in process......
$ 369,000
Total manufacturing costs...............................................
$ 804,000
Add: Work in process, beginning....................................
$ 23,000
$ 827,000
Deduct: Work in process, ending....................................
$ 37,000
Cost of goods manufactured...........................................
$790,000
4A. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.
No:
General Journal
Debit
Credit
Manufacturing Overhead
$9,750
Cost of goods sold
$9,750
4B. Prepare a schedule of cost of goods sold.
Schedule of cost of goods sold:
Finished goods inventory, beginning...........................
$ 62,000
Add: Cost of goods manufactured..............................
$ 790,000
Goods available for sale...............................................
852,000
Deduct finished goods inventory, ending...................
32,000
Unadjusted cost of goods sold....................................
820,000
Deduct: Overapplied overhead....................................
9,750
Adjusted cost of goods sold........................................
$810,250
5. Prepare an income statement for the year.
5.
Froya Fabrikker A/S
Income Statement
Sales............................................................................
$1,300,000
Cost of goods sold......................................................
$ 810,250
Gross margin...............................................................
$ 489,750
Selling and administrative expenses:
Advertising expense................................................
$138,000
Utilities expense......................................................
$ 3,050
Salaries expense.......................................................
$ 120,000
Depreciation expense...............................................
$ 21,500
Rent expense...........................................................
$ 22,200
$ 304,750
Net operating income..................................................
$ 185,000
Feel free to ask your doubts . Thanks!!!
No:
General Journal
Debit
Credit
a
Raw Materials
$210,000
Accounts Payable
$210,000
b
Work in progress
$195,000
Raw materials
$195,000
c
Manufacturing Overhead
$57,950
Utilities Expense
$3,050
Accounts Payable
$61,000
d
Work in Process
$240,000
Manufacturing Overhead
$92,000
Salaries Expense
$120,000
Salaries and 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
$64,500
Depreciation Expense
$21,500
Accumulated Depreciation
$86,000
h
Manufacturing Overhead
$88,800
Rent Expense
$22,200
Accounts Payable
$111,000
i
Work in Process
$369,000
Manufacturing Overhead
(Working Note 1)
$369,000
j
Finished Goods
$790,000
Work in Process
$790,000
K(a)
Accounts Receivable
$1,300,000
Sales
$1,300,000
K(b)
Cost of Goods Sold
$820,000
Finished Goods
$820,000
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