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 speclalty heavy equipment for use In North Sea oll 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 $395,600 of manufacturing overhead for an estimated allocation base of 920 direct labor-hours. The following transactions took place during the year a. Raw materlals purchased on account, $290,000. b. Raw materials used In production (all direct materials), $275,000. C Utility bills incurred on account, $77,000 (90% related to factory operations, and the remainder related to selling and administrative activitles). d. Accrued salary and wage costs: Direct labor (970 hours) Indirect labor Selling and administrative salaries 320,000 s 108,000 200,000 e. Maintenance costs incurred on account in the factory, $72,000 f. Advertising costs incurred on account, $154,000. Depreciation was recorded for the year, $90,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment) Rental cospncurred on account, S115,000 (80% related to factory facilities, and the remainder related to selling and administrative facltles). Manufacturing overhead cost was applied tojobs, S 2 - J Cost of goods manufactured for the year, $950,000. k. Sales for the year (ail on account) totaled $2.100.000. These goods cost $980.000 according to their job cost sheets The balances in the inventory accounts at the beginning of the year were: Raw Haterials Work in Process Finished Goods 4B,000 $ 39,000 $78,000 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.

Explanation / Answer

Income statement Sales 2,100,000 cost of goods sold 971,700 Gross margin 1,128,300 Selling and administrative expense Utilities expense 7700 Advertising expense 154,000 Salaries expense 200,000 Depreciation expense 22,500 rent expense 23000 407,200 Net operating income 721,100

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