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- ed on a cost formula that estimated $349,800 of manufacturing overhead for an estimated allocation base of 1,060 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $230,000. b. Raw materials used in production (all direct materials), $215,000. c. Utility bills incurred on account, $65,000 (85% related to factory operations, and the remainder related to selling and administrative activities). d. Accrued salary and wage costs: Direct labor (1,135 hours) Indirect labor Selling and administrative salaries $ 260,000 $ 96,000 $ 140,000 e. Maintenance costs incurred on account in the factory, $60,000 f. Advertising costs incurred on account, $142,000. g. Depreciation was recorded for the year, $90,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $115,000 (80% related to factory facilities, and the remainder related to selling and administrative facilities). 1. Manufacturing overhead cost was applied to jobs, $_?. J. Cost of goods manufactured for the year, $830,000. k. Sales for the year (all on account) totaled $1,500,000. These goods cost $860,000 according to their job cost sheets. The balances in the Inventory accounts at the beginning of the year were:

Answer 1

1.

	Account Titles	Debit	Credit
a.	Raw Materials	$              230,000
	Accounts Payable		$                230,000
b.	Work in Process	$              215,000
	Raw Materials		$                215,000
c.	Manufacturing Overhead	$                55,250		=65000*85%
	Selling and administrative expenses	$                   9,750		=65000*15%
	Accounts Payable		$                  65,000
d.	Work in Process	$              260,000
	Manufacturing Overhead	$                96,000
	Selling and administrative expenses	$              140,000
	Wages Payable		$                496,000
e.	Manufacturing Overhead	$                60,000
	cash		$                  60,000
f.	Selling and administrative expenses	$              142,000
	Cash		$                142,000
g.	Manufacturing Overhead	$                67,500		=90000*75%
	Selling and administrative expenses	$                22,500		=90000*25%
	Accumulated Depreciation		$                  90,000
h.	Manufacturing Overhead	$                92,000		=115000*80%
	Selling and administrative expenses	$                23,000		=115000*20%
	Accumulated Depreciation		$                115,000
i.	Work in Process	$              374,550		=349800/1060*1135
	Manufacturing Overhead		$                374,550
i.	Finished Goods Inventory	$              830,000
	Work in Process		$                830,000
j.	Accounts Receivable	$          1,500,000		=9900*25
	Sales Revenue		$            1,500,000
	Cost of Goods Sold	$              860,000
	Finished Goods		$                860,000

2.

Raw Material Inventory					Work in Process Inventory
Beg Bal	$      36,000.00				Beg Bal	$      27,000.00
a.	$    230,000.00	$       215,000.00	b.		b.	$    215,000.00	$    830,000.00	j.
					d.	$    260,000.00
					j.	$    374,550.00
End Bal	$      51,000.00
					End Bal	$      46,550.00
Finished Goods Inventory					Manufacturing Overhead
Beg Bal	$      66,000.00				Beg Bal
j.	$    830,000.00	$       860,000.00	k.		c.	$      55,250.00	$    374,550.00	j.
					d.	$      96,000.00
					e.	$      60,000.00
					g.	$      67,500.00
					h.	$      92,000.00
End Bal	$      36,000.00				End Bal		$        3,800.00
Cost of Goods Sold					Selling and administrative expenses
					Beg Bal
k.	$    860,000.00				c.	$        9,750.00
					d.	$    140,000.00
					f.	$    142,000.00
					g.	$      22,500.00
					h.	$      23,000.00
End Bal	$    860,000.00				End Bal	$    337,250.00
Sales Revenue
			Beg Bal
		$   1,500,000.00	k.
		$   1,500,000.00	End Bal

3.

Cost of Goods Manufactured Schedule
Direct Materials
Raw Material Inventory	$            36,000
Raw Material Purchases	$          230,000
Total Raw Material available for use	$          266,000
Less : Raw Material Inventory	$            51,000
Direct Material Used in production		$             215,000
Direct Labor		$             260,000
Manufacturing Overhead applied		$             374,550
Total Manufacturing Costs		$             849,550
Beginning Work in process inventory		$               27,000
		$             876,550
Less: Ending Work in Process inventory		$               46,550
Cost of goods manufactured		$             830,000

4A.

Account Titles	Debit	Credit
Manufacturing Overhead	$              3,800
Cost of Goods Sold		$                 3,800

I.e. ending balance in manufacturing overhead

4B.

Cost of Goods Sold
Beginning Finsihed Goods Inventory	$      66,000.00
Add : Cost of Goods manufactured	$    830,000.00
Cost of Goods Available for sale	$    896,000.00
Less : Ending Finsihed Goods Inventory	$      36,000.00
Unadjusted Cost of Goods Sold	$    860,000.00
Under-/Overapplied Overhead	$       -3,800.00
Adjusted Cost of Goods Sold	$    856,200.00

5.

Income Statement
Sales Revenue		$   1,500,000.00
Less Cost of Goods Sold		$       856,200.00
Gross Profit		$       643,800.00
Operating Expenses		$       337,250.00
Net Income		$       306,550.00