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 $336,000 of manufacturing overhead for an estimated allocation base of 1,050 direct labor-hours. The following transactions took place during the year a. Raw materials purchased on account. $245,000. b. Raw materials used in production (all direct materials). $230.000 c. Utility bills incurred on account, $68,000 (85% related to factory operations, and the remainder related to selling and administrative activities). d. Accrued salary and wage costs Direct labor (1,125 hours) Indirect labor Selling and administrative salaries 5 275.ee $ 99.000 $ 155.000 e. Maintenance costs incurred on account in the factory $63.000 1 Advertising costs incurred on account, $145 000 g. Depreciation was recorded for the year. 581000 (70% related to factory equipment, and the remainder related to selling and administrative equipment) h Rental cost incurred on account, $106.000 675 related to factory facilities, and the remainder related to selling and administrative facilities) Manufacturing overhead cost was applied to jobs. S2 J. Cost of goods manufactured for the year $850,000

Answer 1

1)

Event	Account titles and explanation	Debit	Credit
a.	Raw Materials Inventory	$245000
	Accounts Payable		$245000
	(To record materials purchased)
b.	Work in Process Inventory	$230000
	Raw Materials Inventory		$230000
	(To record direct materials used in production)
c.	Manufacturing Overhead ($68000*85%)	$57800
	Utilities Expense ($68000*15%)	$10200
	Accounts Payable		$68000
	(To record utilities bills incurred on account)
d.	Work in Process Inventory	$275000
	Manufacturing Overhead	$99000
	Salaries Expense	$155000
	Salaries and Wages Payable ($275000+99000+155000)		$529000
	(To record salary and wages incurred)
e.	Manufacturing Overhead	$63000
	Accounts Payable		$63000
	(To record maintenance costs incurred on account)
f.	Advertising Expense	$145000
	Accounts Payable		$145000
	(To record advertising costs incurred on account)
g.	Manufacturing Overhead ($81000*70%)	$56700
	Depreciation Expense ($81000*30%)	$24300
	Accumulated Depreciation : Equipment		$81000
	(To record depreciation expense)
h.	Manufacturing Overhead ($106000*75%)	$79500
	Rent Expense ($106000*25%)	$26500
	Accounts Payable		$106000
	(To record rent incurred on account)
i.	Work in Process Inventory ($320*1125)	$360000
	Manufacturing Overhead		$360000
	(To record manufacturing overhead applied)
j.	Finished Goods Inventory	$860000
	Work in Process Inventory		$860000
	(To record work in process transferred to finished goods)
k(1)	Accounts Receivable	$1650000
	Sales		$1650000
	(To record sales on account)
k(2)	Cost of Goods Sold	$890000
	Finished Goods Inventory		$890000
	(To record cost of goods sold)

Predetermined overhead rate= Estimated manufacturing overhead/Estimated direct labor hours

= $336000/1050= $320 per direct labor hour

2)

Accounts Receivable					Sales
Beg. Bal.					Beg. Bal.
k(1)	1650000						1650000	k(1)
End. Bal.	$1650000				End. Bal.
Raw materials					Cost of goods sold
Beg. bal.	$39000				Beg. Bal.
a.	2450000	230000	b.		k(2)	890000
					End. Bal.
End. bal.	$54000
Work in process					Manufacturing Overhead
Beg. Bal.	$30000	860000	j.		Beg. Bal.
b.	230000				c.	57800	360000	i.
d.	275000				d.	99000
i.	360000				e.	63000
					g.	56700
End. Bal.	$35000				h.	79500
					End. Bal.		4000
Finished goods					Advertising expense
Beg. Bal.	$69000				Beg. Bal.
j.	860000	890000	k(2)		f.	145000
					End. Bal.	145000
End. Bal.	39000
Accumulated Depreciation					Utilities Expense
Beg. Bal.					Beg. Bal.
		81000	g.		c.	10200
End. Bal.		81000			End. Bal.	10200
Accounts Payable					Salaries Expense
Beg. Bal.					Beg. Bal.
		245000	a.		d.	155000
		68000	c.
		63000	e.		End. Bal.	155000
		145000	f.
		106000	h.
End. Bal.		627000
Depreciation expense					Salaries & wages payable
Beg. Bal.					Beg. Bal.
g.	24300						529000	d.
End. Bal.	24300				End. Bal.		529000
Rent expense
Beg. Bal.
h.	26500
End. Bal.	26500

3.

Froya Fabrikker A/S
Schedule of Cost of Goods Manufactured
Direct materials:
Beginning raw materials inventory	$39000
Add: Purchase of raw materials	245000
Total raw materials available	284000
Less: Ending raw materials inventory	54000
Raw materials used in production		$230000
Direct labor		275000
Manufacturing overhead applied		360000
Total manufacturing costs		865000
Add: Beginning work in process inventory		30000
Total cost of work in process		895000
Less: Ending work in process inventory		35000
Cost of goods manufactured		$860000

4-A) Actual manufacturing cost= $57800+99000+63000+56700+79500= $356000

Overapplied or underapplied overhead= Actual manufacturing cost-Applied manufacturing costs

= $356000-360000=$4000 overapplied

Event	Account titles and explanation	Debit	Credit
	Manufacturing overhead	$4000
	Cost of goods sold		$4000
	(To record overapplied manufacturing overhead close to cost of goods sold)

b)

Froya Fabrikker A/S
Schedule of Cost of goods sold
Beginning finished goods inventory	$69000
Add: Cost of goods manufactured	860000
Cost of goods available for sale	929000
Less: Ending finished goods inventory	39000
Unadjusted cost of goods sold	890000
Less: Overapplied overhead	4000
Adjusted cost of goods sold	$886000

5)

Froya Fabrikker A/S
Income Statement
For the Year Ended
Sales		$1650000
Less: Cost of goods sold		886000
Gross profit		764000
Less: Selling and administrative expenses
Utilities expense	10200
Salaries expense	155000
Advertising expense	145000
Depreciation expense	24300
Rent expense	26500
Total selling and administrative expenses		361000
Net operating income		$403000