Question

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Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea of 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 $399,000 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, $280,000. b. Raw materials used in production (all direct materials). $265.000 c. Utility bills incurred on account, $75.000 (80% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs: Direct labor (1,100 hours) Indirect labor Selling and administrative salaries $ 310,000 $ 100,000 $ 199,000 e. Maintenance costs incurred on account in the factory, $70,000 f. Advertising costs incurred on account. $152,000 9. Depreciation was recorded for the year. $88.000 (85% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account. $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities). Manufacturing overhead cost was applied to jobs. S J. Cost of goods manufactured for the year. $930,000, K Sales for the year (all on account totaled $2,000,000. These goods cost $960,000 according to their job cost sheets

Answer 1

1) journal entries

S.no	particular	Debit ($)	credit ($)
1	Raw material inventory	280000
	Accounts payable		280000
2	work in process	265000
	RAW MATERIAL INVENTORY		265000
3	manufacturing overhead	60000
	Utility expenses	15000
	Utilities payable		75000
4	work in process	310000
	Manufacturing overhead	106000
	Selling and administrative salaries	190000
	Wages payable		606000
5	manufacturing overhead	70000
	Accounts payable		70000
6	advertising expenses	152000
	Accounts payable		152000
7	manufacturing overhead	74800
	Depreciation expenses	13200
	Accumulated depreciation		88000
8	Manufacturing overhead	101700
	Rental expenses	11300
	Rental payable		113000
9	work in process (note below)	418000
	Manufacturing overhead		418000
10	finished goods	930000
	Work in process		930000
11	accounts receivable	2000000
	Sales		2000000
12	cost of goods sold	960000
	Finished goods		960000

Note pre determined OVERHEAD = 399000/1050 = 380 per direct labour hrs

1100 × 380 = $418000

2) RAW MATERIAL INVENTORY

Beginning balance	46000	work in process	265000
Accounts payable	280000
		Balance	61000

work in process

Beginning balance	37000	finished goods	930000
Raw material inventory	265000
Wages payable	310000	balance	100000
MANUFACTURING OVERHEAD	418000

     Finished goods

Beginning balance	76000	cost of goods sold	960000
Work in process	930000	balance	46000

MANUFACTURING OVERHEAD

Utilities payable	15000	work in process	418000
Accounts payable	70000
Accumulated depreciation	74800
Rental payable	101700
Wages payable	106000
Balance (overapplied)	5500

3). SCHEDULE OF COST OF GOODS MANUFACTURED

Particular	amount ($)
Direct material	265000
Direct labour	310000
Manufacturing overhead	418000
Total	993000
Add beginning work in process	37000
(-) end in work in process	(100000)
cost of goods manufactured	930000

4a).

Manufacturing overhead (overapplied)	5500
Cost of goods sold		5500

4b) SCHEDULE OF COST OF GOODS SOLD

Particular	amount ($)
Beginning balance	76000
Cost of goods manufactured	930000
Cost of goods available for sale	1006000
(-) ending finished goods	(46000)
(-) overapplied overhead	(5500)
Cost of goods sold	954500

5). Income statement

Particular	amount ($)
Revenue	2000000
(-) cost of goods sold	(954500)
Gross margin	1045500
(-) rental expenses	(11300)
(-) Utilities	(15000)
(-) Selling and administrative salaries	(190000)
(-) Advertising	(152000)
(-) Depreciation	(13200)
net operating income	664000

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