Question

Eroya 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 $360,000 of manufacturing overhead for an estimated allocation base of 900 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $200,000. b. Raw materials used in production (all direct materials), $185,000. c. Utility bills incurred on account, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities). d. Accrued salary and wage costs: Direct labor (975 hours) $ 230,000 Indirect labor $ 90,000 Selling and administrative salaries$ 110,000 e. Maintenance costs incurred on account in the factory, S54,000. f. Advertising costs incurred on account, $136,000. 8. Depreciation was recorded for the year, 595,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $120,000 (85% related to factory facilities, and the remainder related to selling and administrative facilities). i. Manufacturing overhead cost was applied to jobs, $ ? j. Cost of goods manufactured for the year, S770,000. k. Sales for the year (all on account) totaled $1,200,000. These goods cost $800,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materials $30,000 Work in Process $21,000 Finished Goods $60,000 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.) 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

Accounts Receivable					Sales
Beg. bal.	$0				Beg. bal.
k.	1200000						1200000	k
End. bal.	1200000				End. bal.		1200000
Raw Materials					Cost of Goods Sold
Beg. bal.	$30000				Beg. bal.
a.	200000	185000.	b		k	800000
End. bal.	45000				End. bal.	800000
Work in Process					Manufacturing Overhead
Beg. bal.	$21000				Beg. bal.
b	185000	770000	j		c	63000 (70000*90%)	390000	i
d	230000				d	90000
i	390000				e	54000
					g	76000 (95000*80%)
End. bal.	56000				h	102000 (120000*85%)
					End. bal.		5000
Finished Goods					Advertising Expense
Beg. bal.	$60000				Beg. bal.
j	770000	800000	k		f	136000
					End. bal.	136000
End. bal.	30000
Accumulated Depreciation					Utilities Expense
Beg. bal.					Beg. bal.
		95000	g		c	7000 (70000*10%)
End. bal.		95000			End. bal.	7000
Accounts Payable					Salaries Expense
Beg. bal.					Beg. bal.
		200000	a		d	110000
		70000	c
		54000	e		End. bal.	110000
		136000	f
		120000	h
End. bal.		580000
Depreciation Expense					Salaries & Wages Expense
Beg. bal.					Beg. bal.
g	19000						430000	d
End. bal.	19000				End. bal.		430000
Rent Expense
Beg. bal.
h.	18000
End. bal.	18000

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

= $360000/900= $400 per DLH

Manufacturing overhead applied= $400*975= $390000

Depreciation expense= $95000*20%= $19000

Rent expense= $120000*15%= $18000