Question

2 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 $373,700 of manufacturing overhead for an estimated allocation base of 1,010 direct labor-hours. The following transactions took place during the year: 7 points a. Raw materials purchased on account, $255,000 b. Raw materials used in production (all direct materials), $240,000 C. Utility bills incurred on account, $70,000(95% related to factory operations, and the remainder related to selling and administrative eBook activities) d. Accrued salary and wage costs: Print Direct labor (1,085 hours) Indirect labor Selling and administrative salaries 285,000 101,000 165,000 References e. Maintenance costs incurred on account in the factory, $65,000 f. Advertising costs incurred on account, $147,000 g. Depreciation was recorded for the year, $83,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment) h. Rental cost incurred on account, $108,000 (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, $880,000 k. Sales for the year (all on account) totaled $1,750,000. These goods cost $910,000 according to their job cost sheets

Answer 1

1.

Transactions	General Journal	Debit	Credit
a.	Raw materials	255000
	Accounts payable		255000
	(To record raw materials purchased on account)
b.	Work in process	240000
	Raw Materials		240000
	(To record direct materials used in production)
c.	Manufacturing overhead ($70000 x 95%)	66500
	Utilities expense ($70000 x 5%)	3500
	Accounts Payable		70000
	(To record utility bills incurred on account)
d.	Work in process	285000
	Manufacturing overhead	101000
	Salaries and wages expense	165000
	Salaries and wages payable		551000
	(To record salary and wage costs incurred)
e.	Manufacturing overhead	65000
	Accounts payable		65000
	(To record maintenance costs incurred on account in factory)
f.	Advertising expense	147000
	Accounts payable		147000
	(To record advertising costs incurred on account)
g.	Manufacturing overhead ($83000 x 80%)	66400
	Depreciation expense ($83000 x 20%)	16600
	Accumulated depreciation		83000
	(To record depreciation for the year)
h.	Manufacturing overhead ($108000 x 85%)	91800
	Rent expense ($108000 x 15%)	16200
	Accounts Payable		108000
	(To record rental cost incurred on account)
i.	Work in process (1085 x $370)	401450
	Manufacturing overhead		401450
	(To record manufacturing overhead applied)
j.	Finished goods	880000
	Work in process		880000
	(To record goods completed and transferred to finished goods)
k(1)	Accounts receivable	1750000
	Sales revenue		1750000
	(To record sales on account)
k(2)	Cost of goods sold	910000
	Finished goods		910000
	(To record cost of sales)

Predetermined overhead rate = $373700/1010 = $370 per direct labor hour

2.

Raw Materials					Work in Process
	Debit	Credit				Debit	Credit
Beg. Bal.	41000				Beg. Bal.	32000
a.	255000	240000	b.		b.	240000	880000	j.
End. Bal.	56000				d.	285000
					i.	401450
					End. Bal.	78450
Finished Goods					Manufacturing Overhead
	Debit	Credit				Debit	Credit
Beg. Bal.	71000				Beg. Bal.	0
j.	880000	910000	k(2)		c.	66500	401450	i.
					d.	101000
End. Bal.	41000				e.	65000
					g.	66400
					h.	91800
					End. Bal.		10750
Sales Revenue					Cost of Goods Sold (COGS)
	Debit	Credit				Debit	Credit
		1750000	k(1)		k(2)	910000
End. Bal.		1750000			End. Bal.	910000
Rent Expense					Utilities Expense
	Debit	Credit				Debit	Credit
h.	16200				c.	3500
End. Bal.	16200				End. Bal.	3500
Accounts Payable					Accounts Receivable
	Debit	Credit				Debit	Credit
		255000	a.		k(1)	1750000
		70000	c.
		65000	e.
		147000	f.
		108000	h.
End. Bal.		645000			End. Bal.	1750000
Salaries Expense					Salaries Payable
	Debit	Credit				Debit	Credit
d.	165000						551000	d.
End. Bal.	165000				End. Bal.		551000
Advertising Expense					Depreciation Expense
	Debit	Credit				Debit	Credit
f.	147000				g.	16600
End. Bal.	147000				End. Bal.	16600
Accumulated Depreciation
	Debit	Credit
		83000	g.
End. Bal.		83000

3.

Froya Fabrikker A/S
Schedule of Cost of Goods Manufactured
Direct materials:
Beginning raw materials inventory	41000
Add: Purchases of raw materials	255000
Total raw materials available	296000
Less: Ending raw materials inventory	56000
Materials used in production		240000
Direct labor		285000
Manufacturing overheads		401450
Total manufacturing costs incurred		926450
Add: Beginning work in process inventory		32000
Total manufacturing costs		958450
Less: Ending work in process inventory		78450
Cost of goods manufactured $		880000

4A.

Transaction	General Journal	Debit	Credit
1	Manufacturing overhead	10750
	Cost of goods sold		10750
	(To close overapplied overheads to cost of goods sold)

Note: This transaction has not been posted to the T-accounts since not required by the question.