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 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: a. Raw materials purchased on account, $220,000 b. Raw materials used in production (all direct materials), $205,000 C. Utility bills incurred on account, $63,000 (90% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs Direct labor (1,075 hours) Indirect labor Selling and administrative salaries $ 250,000 $ 94,000 $ 130,000 e. Maintenance costs incurred on account in the factory, $58,000 f. Advertising costs incurred on account, $140,000 g. Depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment) h. Rental cost incurred on account, $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities) i. Manufacturing overhead cost was applied to jobs, $_? j. Cost of goods manufactured for the year, $810,000 k. 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 Raw Materials Work in Process Finished Goods $34,000 $25,000 64,000 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

Accounting titles & Explanations Debit Credit a) Raw materials inventory 220,000 Accounts payable 220,000 b) work in process inventory 205,000 Raw materials inventory 205,000 c) manufacturing overhead 56700 utility expense 6300 Accounts payable 63,000 d) work in process inventory 250,000 Manufacturing overhead 94,000 Salary expense 130,000 Salary & wages payable 474,000 e) Manufacturing overhead 58,000 Accounts payable 58,000 f) Advertising expense 140,000 Accounts payable 140,000 g) Manufacturing overhead 74800 Depreciation expense 13200 Accumulated depreciation 88,000 h) Manufacturing overhead 101700 Rent expense 11300 Accounts payable 113,000 i) Work in process inventory 408,500 Manufacturing overhead 408,500 j) finished goods inventory 810,000 Work in process inventory 810,000 k) Accounts receivable 1,400,000 sales 1,400,000 cost of goods sold 840,000 finished goods inventory 840,000 Accounts receivable Sales Beg.bal Beg.bal k. 1,400,000 1,400,000 k. end bal 1,400,000 1,400,000 end bal Raw Materials cost of goods sold Beg.Bal 34,000 Beg.Bal a. 220,000 205,000 b. k. 840,000 End bal 49,000 End bal 840,000 Work in process Manufacturing overhead Beg Bal 25,000 Beg.Bal b. 205,000 810,000 j c. 56700 408,500 i d. 250,000 d. 94,000 i. 408500 e. 58,000 g. 74800 end bal 78,500 h. 101700 23,300 End bal finished goods Advertising expense Beg bal 64,000 Beg.bal j 810,000 840,000 k f. 140,000 End bal 34,000 end bal 140,000 Accumulated Depreciation Utilities expense beg.bal Beg bal g. 88,000 g. c. 6300 End bal 88,000 end bal 6,300 Accounts payable Salaries expense Beg.bal Beg.Bal 220,000 a. d. 130,000 63,000 c. 58,000 e. 140,000 f. 113,000 h. End bal 594,000 end bal 130,000 Depreciation expense Salaries & wages payable Beg.bal Beg.bal g. 13200 474,000 d. End bal 13,200 end bal 474,000 rent expense beg bal h. 11300 End bal 11,300 overhead applied = (380,000/1000)*1075 = 408500 (change the figure if read incorrect due to figures being bit blurry) Schedule of Cost of Goods Manufactured Direct Materials: Beginning raw materials inventory 34,000 Add:purchase of raw materials 220,000 Total raw materials available 254,000 less:Ending raw materials inventory 49,000 Materials used in production 205,000 Direct Labor 250,000 Manufacturing overhead applied to work in process 408500 total manufacturing costs 863,500 Add:Beginning work in process inventory 25,000 888,500 less:Ending work in process inventory 78,500 Cost of goods manufactured 810,000     Schedule of Cost of goods sold Beginning finished goods inventory 64,000 Add:Cost of goods manufactured 810,000 Cost of goods available for sale 874,000 less:ending finished goods inventory 34,000 Unadjusted cost of goods sold 840,000 less:overapplied overhead 23,300 Adjusted cost of goods sold 816,700 Income statement Sales 1,400,000 cost of goods sold 816,700 Gross margin 583,300 Selling and administrative expense Utilities expense 6300 Advertising expense 140,000 Salaries expense 130,000 Depreciation expense 13,200 rent expense 11300 300,800 Net operating income 282,500

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