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 e utility bils incurred on account. S63.000 (90% related to factory operations, and the remainder related to selling and administrative d. Accrued salary and wage costs 94,080 $ 130,e09 e. Maintenance costs incurred on account in the factory, $58,000 1. Advertising costs incurred on account, $140,000 g Depreciation was recorded for the year. S88000 (85% related to factory equipment, and the remainder related to selling and h. Rental cost incurred on account, $113 0 0 9 % related to factory facilites, and the remainder related to selling and administrative facilities) . Manufacturing overhead cost was applied to jobs, S2 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: Mork in Process s 25,000

Explanation / Answer

FROYA FABRKKER A/S General journal Ref Account Debit Credit a Raw materials 220000 Accounts payable 220000 (Raw materials purchased ) b Work in process 205000 Raw materials 205000 (Raw materials issued for production) c Manufacturing overhead 56700 Utilities expense 6300 Accounts payable 63000 (Utilities expense incurred - 85% of $68,000 for factory balance selling) d Work in process 250000 Manufacturing overhead 94000 Salaries and wages expense 130000 Salaries and wages payable 474000 e Manufacturing overhead 58000 Accounts payable 58000 (Maintenance expenses for factory) f Advertising expenses 140000 Accounts payable 140000 (Advertising expenses incurred) g Manufacturing overhead 74800 Depreciation expense 13200 Accumulated depreciation 88000 (Depreciation expense recorded - Total $88,000 , 85% for factory) h Manufacturing overhead 101700 Rental expense 11300 Accounts payable 113000 (Rental expense recorded) i Work in process * 408500 Manufacturing overhead * 408500 (Manufacturing overhead applied to production - 1,075 hours @$380 per hr) j Finished goods 810000 Work in process 810000 (Cost of finished goods manufactured transferred to finished goods a/c) k Cost of goods sold 840000 Finished goods 840000 (Cost of finished goods sold recorded) k Accounts receivable 1400000 Sales revenue 1400000 (Sale of goods recorded) Ref Account Debit Credit l Cost of goods sold 5500 Manufacturing overhead 5500 (Transfer of overerapplied overhead to cost of goods sold) * Predetermnied overhead rate = Estimated overhead cost / Estimated direct labor hours                                                                = 380,000 / 1000 = $380 per direct labor hour Raw material Finished goods Accounts payable Ref Debit Credit Ref Ref Debit Credit Ref Ref Debit Credit Ref Beg.Bal 34000 205000 b Beg.Bal 64000 840000 k 220000 a a 220000 End.bal j 810000 56700 c 6300 c 254000 205000 874000 840000 58000 e End.bal 49000 End.bal 34000 140000 f 101700 h Manufacturing overhead Work in process 11300 h Ref Debit Credit Ref Ref Debit Credit Ref c 56700 408500 i Beg.Bal 25000 810000 j d 94000 b 205000 e 58000 d 250000 g 74800 i 408500 Salaries and wages expense h 101700 888500 810000 Ref Debit Credit Ref 385200 408500 End.bal 78500 d 130000 23300 End.bal Depreciation expense Ref Debit Credit Ref 130000 Advertising expense g 13200 Ref Debit Credit Ref Utilities expense f 140000 13200 0 Ref Debit Credit Ref c 6300 Cost of goods sold Sales revenue Ref Debit Credit Ref Ref Debit Credit Ref 6300 k 840000 1400000 k l Rental expense 840000 Ref Debit Credit Ref Accumulated depreciation Accounts receivable h 11300 Ref Debit Credit Ref Ref Debit Credit Ref 74800 g k 1400000 13200 g Salaries and wages payable Ref Debit Credit Ref 250000 d 94000 d 130000 d 474000 Cost of goods manufactured Beginning raw material 34000 Add: Purchases 220000 254000 Less: Ending stock 49000 205000 Direct labor 250000 Manufacturing overhead 408500 863500 Add: Beginning work in process 25000 888500 Less: Ending work inprocess 78500 Cost of goods manufactured 810000 Cost of goods sold Cost of goods manufactured 810000 Add: Beginning finished goods 64000 Goods available for sale 874000 Less: Ending finished goods 34000 Unadjusted cost ofgoods sold 840000 Adjustment -23300 Cost of goods sold 816700 FROYA FABRIKKER Income statement Sales revenue 1400000 Cost of goods sold 816700 Gross margin 583300 Selling and administrative expenses Advertising expense 140000 Salaries and wages 130000 Rent expense 11300 Depreciation expense 13200 Utilities expense 6300 300800 Net operating income 282500

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