Question

Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea oil Telds. 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 $350,000 of manufacturing overhead for an estimated allocation base of 1,000 direct labor-hours. The following transactions took place during the year a Raw materials purchased on account. $250.000 b. Raw materials used in production (all direct materials) $235.000 c Utility bills incurred on account, $69.000 (90% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs. Direct labor (1,075 hours) Indirect labor Selling and administrative salaries $ 230.000 $100.000 $160.000 e Maintenance costs incurred on account in the factory, 564,000 1. Advertising costs incurred on account. $146,000. g. Depreciation was recorded for the year, 582,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment). h Rental cost incurred on account, $107.000 (80% 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, 5870,000 k. Sales for the year (all on account) totaled $1,700,000. These goods cost $900,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materials Work in Process Finished Goods $ 40,000 $ 31,000 $ 70,000 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. 48. Prepare a schedule of cost of goods sold. 5. Prepare an income statement for the year. Complete this question by entering your answers in the tabs below.

Answer 1

General Journal	Debit	Credit
Raw material	250,000
Accounts payable		250,000
Work in progress	235,000
Raw material Inventory		235,000
Manufacturing Overhead	62,100
Utility Expense	6,900
Utilities payable		69,000
Work in progress	280,000
Manufacturing Overhead	100,000
Selling and administrative salaries	160,000
Wages payable		540,000
Manufacturing overhead	64,000
Accounts payable		64,000
Advertising expense	146,000
Accounts payable		146,000
Manufacturing overhead	61,500
Depreciation expense	20,500
Accumulated depreciation		82,000
Manufacturing overhead	85,600
Rental Expense	21,400
Rental Payable		107,000
Predetermined overhead rate = 350,000 / 1000 = 350 per direct labor hour
Applied overhead = 350 x 1075 = 376250
Work in progress	376,250
Manufacturing Overhead		376,250
Finished goods	870,000
Work in progress		870,000
Accounts receivable	1,700,000
Sales revenue		1,700,000
Cost of goods sold	900,000
Finished goods		900,000

Raw material Inventory
Beg Bal	40,000	Work in progress	235,000
Accounts payable	250,000
Bal	55,000
Work in progress
Beginning Balance	31,000	Finished Goods	870,000
Raw Material Inventory	235,000
Wages Payable	280,000
Manufacturing Overhead	376,250
Balance	52,250
Finished Goods
Beg Bal	70,000	Cost of goods sold	900,000
Work in progress	870,000
Balance	40,000
Manufacturing Overhead
Utilities payable	62,100	Work in progress	376,250
Wages payable	100,000
Accounts payable	64,000
Accumulated depreciation	61,500
Rental payable	85,600
			3,050
Cost of goods sold
Finished goods	900,000

Schedule of Cost of Goods Manufactured
Direct Material	235,000
Direct labor	280,000
Manufacturing Over Head	376,250
Total MOH	891,250
Add: Beginning Work in progress	31,000
Less: Ending Work in progress	(52,250)
Cost of goods manufactured	870,000

Manufacturing Overhead	3,050
Cost of goods sold		3,050

Schedule of Cost of Goods Sold
Beginning Finished Goods	70,000
Cost of Goods Manufactured	870,000
Cost of Goods Available for Sale	940,000
less Ending Finished Goods	(40,000)
Un-adjusted Cost of Goods Sold	900,000
less Over-applied Overhead	(3,050)
Adjusted Cost of Goods Sold	896,950
Income Statement
Revenue	1,700,000
less Cost of Goods Sold	(896,950)
Gross Margin	803,050
less Expenses:
Utilities Expense	(6,900)
Salaries Expense	(160,000)
Advertising Expense	(146,000)
Depreciation Expense	(20,500)
Rental Expense	(21,400)
Operating Income	448,250