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 $395,600 of manufacturing overhead for an estimated allocation base of 920 direct labor-hours. The following transactions took place during the year:

1. Raw materials purchased on account, $290,000.
2. Raw materials used in production (all direct materials), $275,000.
3. Utility bills incurred on account, $77,000 (90% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (970 hours)	$	320,000
Indirect labor	$	108,000
Selling and administrative salaries	$	200,000

5. Maintenance costs incurred on account in the factory, $72,000
6. Advertising costs incurred on account, $154,000.
7. Depreciation was recorded for the year, $90,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).
8. Rental cost incurred on account, $115,000 (80% related to factory facilities, and the remainder related to selling and administrative facilities).
9. Manufacturing overhead cost was applied to jobs, $ ? .
10. Cost of goods manufactured for the year, $950,000.
11. Sales for the year (all 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 Materials	$	48,000
Work in Process	$	39,000
Finished Goods	$	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.)

Post your entries to T-accounts. (Don't forget to enter the beginning inventory balances above.) Accounts Receivable Sales Beg. Bal. Beg. Bal. End. Bal. End. Bal. Raw Materials Cost of Goods Sold Beg. Bal. Beg. Bal. End. Bal. End. Bal. Work in Process Manufacturing Overhead Beg. Bal. Beg. Bal. End. Bal. End. Bal. Finished Goods Advertising Expense Beg. Bal. Beg. Bal. End. Bal. End. Bal. Accumulated Depreciation Utilities Expense Beg. Bal. Beg. Bal. End. Bal. End. Bal.

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.

Answer 1

1)
a.	Raw Materials	290000
	Accounts Payable		290000
b.	Work in Process	275000
	Raw Materials		275000
c.	Manufacturing Overhead	693000
	Utilities Expense	77000
	Accounts Payable		770000
d.	Work in Process	320000
	Manufacturing Overhead	108000
	Salaries Expense	200000
	Salaries and Wages Payable		628000
e.	Manufacturing Overhead	72000
	Accounts Payable		72000
f.	Advertising Expense	154000
	Accounts Payable		154000
g.	Manufacturing Overhead = 75% x $90000	67500
	Depreciation Expense	22500
	Accumulated Depreciation		90000
h.	Manufacturing Overhead ($115,000 x 80%)	92000
	Rent Expense	23000
	Accounts Payable		115000
i.	Work in Process	417100
	Manufacturing Overhead		417100
	Predetermined overhead rate = $395,600/920 DLH	430
	970 actual DLH × $430 per DLH = $417,100
j.	Finished Goods	950000
	Work in Process		950000
k.	Accounts Receivable	2100000
	Sales		2100000
	Cost of Goods Sold	980000
	Finished Goods		980000