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 $349,800 of manufacturing overhead for an estimated allocation base of 1,060 direct labor-hours. The following transactions took place during the year:

1. Raw materials purchased on account, $230,000.
2. Raw materials used in production (all direct materials), $215,000.
3. Utility bills incurred on account, $65,000 (85% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (1,135 hours)	$	260,000
Indirect labor	$	96,000
Selling and administrative salaries	$	140,000

5. Maintenance costs incurred on account in the factory, $60,000
6. Advertising costs incurred on account, $142,000.
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, $830,000.
11. 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:

Raw Materials	$	36,000
Work in Process	$	27,000
Finished Goods	$	66,000

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.

Journal entry worksheet Record the entry to close any balance in the manufacturing overhead account to cost of goods sold. Note: Enter debits before credits. Transaction General Journal Debit Credit Record entry Clear entry Ciel View general journal

Answer 1

4A.

Transaction	General Journal	Debit	Credit
1	Manufacturing overhead	3800
	Cost of goods sold		3800
	(To close overapplied overheads to cost of goods sold)

Working:

Manufacturing overhead applied = $349800 x 1135/1060 = $374550

Manufacturing Overhead
Beg. Bal.	0
c.	55250	374550	i.
d.	96000
e.	60000
g.	67500
h.	92000
End. Bal.		3800

4B.

Froya Fabrikker A/S
Schedule of Cost of Goods Sold
Cost of goods manufactured	830000
Add: Beginning finished goods inventory	66000
Cost of goods available for sale	896000
Less: Ending finished goods inventory	36000
Cost of goods sold $	860000
Less: Manufacturing overheads overapplied	3800
Adjusted cost of goods sold $	856200

5.

Froya Fabrikker A/S
Income Statement
For the Year Ended
Sales revenue		1500000
Cost of goods sold		856200
Gross profit		643800
Selling and administrative expenses:
Utilities expense	9750
Salaries expense	140000
Advertising expense	142000
Depreciation expense	22500
Rent expense	23000	337250
Net operating income $		306550