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 $350,000 of manufacturing overhead for an estimated allocation base of 1,000 direct labor-hours. The following transactions took place during the year:

1. Raw materials purchased on account, $250,000.
2. Raw materials used in production (all direct materials), $235,000.
3. Utility bills incurred on account, $69,000 (90% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (1,075 hours)	$	280,000
Indirect labor	$	100,000
Selling and administrative salaries	$	160,000

5. Maintenance costs incurred on account in the factory, $64,000
6. Advertising costs incurred on account, $146,000.
7. Depreciation was recorded for the year, $82,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).
8. Rental cost incurred on account, $107,000 (80% related to factory facilities, and the remainder related to selling and administrative facilities).
9. Manufacturing overhead cost was applied to jobs, $ ? .
10. Cost of goods manufactured for the year, $870,000.
11. 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	$	40,000
Work in Process	$	31,000
Finished Goods	$	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.

4B. Prepare a schedule of cost of goods sold.

5. Prepare an income statement for the year.

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 $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 $ 280,000 $ 100,000 $ 160,000 e. Maintenance costs incurred on account in the factory, $64,000 f. Advertising costs incurred on account, $146,000. g. Depreciation was recorded for the year, $82,000 (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). i. Manufacturing overhead cost was applied to jobs, $_? j. Cost of goods manufactured for the year, $870,000. 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:
ods manufactured for the year, $870,000. Sales for the year (all on account) totaled $1,700,000. These goods cost $900,000 according to their job cost sheets.

Answer 1

1)
a.	Raw Materials	250000
	Accounts Payable		250000
b.	Work in Process	235000
	Raw Materials		235000
c.	Manufacturing Overhead	62100
	Utilities Expense	6900
	Accounts Payable		69000
d.	Work in Process	280,000
	Manufacturing Overhead	100,000
	Salaries Expense	160,000
	Salaries and Wages Payable		540000
e.	Manufacturing Overhead	64000
	Accounts Payable		64000
f.	Advertising Expense	146000
	Accounts Payable		146000
g.	Manufacturing Overhead = 75% x $82000	61500
	Depreciation Expense	20500
	Accumulated Depreciation		82000
h.	Manufacturing Overhead ($107,000 x 80%)	85600
	Rent Expense	21400
	Accounts Payable		107000
i.	Work in Process	376250
	Manufacturing Overhead		376250
	Predetermined overhead rate = $350,000/1000DLH	350
	1075 actual DLH × $350 per DLH = $376,250
j.	Finished Goods	$   870,000.00
	Work in Process		$   870,000.00
k.	Accounts Receivable	$1,700,000.00
	Sales		$1,700,000.00
	Cost of Goods Sold	$   900,000.00
	Finished Goods		$   900,000.00
Accounts Receivable					Sales
(k)	1,700,000					1,700,000	(k)
Raw Materials					Cost of Goods Sold
Bal.	40,000	235000	(b)		(k)	900,000
(a)	250,000
Bal.	55,000
Work in Process				Manufacturing Overhead
Bal.	31,000	$   870,000.00	(j)	(c)	62,100	376250	(i)
(b)	235,000			(d)	100,000
(d)	280,000			(e)	64000
(i)	376,250			(g)	61500
Bal.	52,250			(h)	85600
						3,050	Bal.
Finished Goods				Advertising Expense
Bal.	70,000	$   900,000.00	(k)	(f)	146000
(j)	870,000
Bal.	40,000
Accumulated Depreciation				Utilities Expense
		82000	(g)	(c)	6900
Accounts Payable				Salaries Expense
		250000	(a)	(d)	160,000
		69000	(c)
		64000	(e)	Depreciation Expense
		146000	(f)	(g)	20500
		107000	(h)
		636000	Bal.
Salaries & Wages Payable				Rent Expense
		540000	(d)	(h)	21400
3)
	Froya Fabrikker A/S
	Schedule of Cost of Goods Manufactured
	Direct materials:
	Raw materials inventory, beginning	40,000
	Purchases of raw materials	250,000
	Materials available for use	290,000
	Raw materials inventory, ending	-55,000
	Materials used in production		235,000
	Direct labor		280,000
	Manufacturing overhead applied to work in process		376250
	Total manufacturing costs		891,250
	Add: Work in process, beginning		31,000
			922,250
	Deduct: Work in process, ending		-52,250
	Cost of goods manufactured		870,000
4)	Manufacturing Overhead	3,050
	Cost of Goods Sold		3,050
	Schedule of cost of goods sold:
	Finished goods inventory, beginning	70,000
	Add: Cost of goods manufactured	870,000
	Goods available for sale	940,000
	Deduct finished goods inventory, ending	-40,000
	Unadjusted cost of goods sold	900,000
	Deduct: Overapplied overhead	-3,050
	Adjusted cost of goods sold	896,950
5)	Froya Fabrikker A/S
	Income Statement
	Sales		1,700,000
	Less cost of goods sold		896,950
	Gross margin		803,050
	Less selling and administrative expenses:
	Advertising expense	146000
	Utilities expense	6,900
	Salaries expense	160,000
	Depreciation expense	20,500
	Rent expense	21400	354800
	Net operating income		448,250