Question

Froya Fabrik AS of Bergen, Norway, is a small company that manufactures specialty Heavy equipment for Norm Sao nelas. The company uses a job-order cosong system that applies manufacturing overhead cost to jobs on the basof director hours. Its predetermined overeed rate was based on a cost formula that estimated $350.000 of manufacturing overhead for estimated allocation base of 1000 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 seeing and administrative actvities) d. Accrued salary and wage costs Direct labor (1,075 hours) Indirect labor Selling and administrative salaries S160,000 e. Maintenance costs incurred on account in the factory $64.000 Advertising costs incurred on account. $146,000 g. Depreciation was recorded for the year, 582,000 (75% related to factory equipment, and the remainderested to selling and administrative equipment). n. 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, $_? 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 54e, Bee $ 31,600 $ 70, Bee Required: 1. Prepare journal entries to record the preceding transactions 2. Post your entries to T-accounts (Dont 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

Transaction	General Journal	Debit	Credit
1) a)	Raw material inventory	$ 250,000
	Accounts payable		$ 250,000
	( to record raw materials purchased for credit )
Transaction	General Journal	Debit	Credit
2)b)	Work in process inventory	$ 235,000
	Raw material inventory		$ 235,000
	(To record raw materials used in production )
Transaction	General Journal	Debit	Credit
3)c)	Manufacturing Overhead(69,000*90%)	$ 62,100
	Utility Expenses (69,000*10%)	$ 6,900
	Utilities payable		$ 69,000
	( To record utilities bills incurred )
Transaction	General Journal	Debit	Credit
4)d)	Work in process inventory	$ 280,000
	Manufacturing overhead	$ 100,000
	Selling and administrative salaries	$ 160,000
	Wages payable		$ 540,000
	(To record salaries and wages accrued )
Transaction	General Journal	Debit	Credit
5)e)	Manufacturing overhead	$ 64,000
	Accounts payable		$ 64,000
	(to record maintenance cost incurred)
Transaction	General Journal	Debit	Credit
6)f)	Advertising expenses	$ 146,000
	Accounts payable		$ 146,000
	( To record Advertising costs incurred)
Transaction	General Journal	Debit	Credit
7)g)	Manufacturing overhead(82,000*75%)	$ 61,500
	Depreciation Expense(82,000*25%)	$ 20,500
	Accumulated Depreciation		$ 82,000
	(To record Depreciation expense was recorded).
Transaction	General Journal	Debit	Credit
8)h)	Manufacturing overhead(107,000*80 %)	$ 85,600
	Rental expense (107,000 *20%)	$ 21,400
	Rental payable		$ 107,000
	( to record rental expense incurred )
Transaction	General Journal	Debit	Credit
9) i)	Work in process inventory ( see note 1 )	$ 376,250
	Manufacturing overhead		$ 376,250
	(to record manufacturing overhead cost applied to jobs )
Transaction	General Journal	Debit	Credit
10) j )	Finished goods inventory	$ 870,000
	Work in process inventory		$ 870,000
	( to record cost of goods manufactured )
Transaction	General Journal	Debit	Credit
11) k (1)	Accounts receivable	$ 1,700,000
	Sales Revenue		$ 1,700,000
	( to record sales for the year )
Transaction	General Journal	Debit	Credit
12) k (2)	Cost of goods sold	$ 900,000
	Finished goods inventory		$ 900,000
	( to record cost of goods sold )

EXPLANATION :

note 1:
To Calculate manufacturing overhead cost applied to jobs
Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated direct labor hours
Predetermined overhead rate = $ 350,000 / 1000 direct labor hours
Predetermined overhead rate = $ 350 per direct labor hour
So, manufacturing overhead cost applied to jobs is $ 376,250
( $ 350 * 1,075 direct labor hours )