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- ed overhead rate was based on a cost formula that estimated $395,600 of manufacturing overhead for an estimated allocation base of 920 direct labor-hours. The following transactions took place during the year: points a. Raw materials purchased on account, $290,000. b. Raw materials used in production (all direct materials), $275,000. c. Utility bills incurred on account, $77,000 (90% related to factory operations, and the remainder related to selling and administrative activities). d. Accrued salary and wage costs: eBook Print Direct labor (970 hours) Indirect labor Selling and administrative salaries $ 320,000 $ 108,000 $ 200,000 References e. Maintenance costs incurred on account in the factory. $72.000 f. Advertising costs incurred on account, $154,000. g. Depreciation was recorded for the year, $90,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $115,000 (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, $950,000. k. Sales for the year (all on account) totaled $2,100,000. These goods cost $980,000 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 $ 48,000 $ 39,000 $78,000 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.

Answer 1

1 a. 290,000 Raw Materials Accounts Payable 290,000 275,000 Work in Process Raw Materials 275,000 Manufacturing Overhead Utilities Expense Accounts Payable 69,300 7,7001 77,000 L ld. Work in Process Manufacturing Overhead Salaries Expense Salaries and Wages Payable 320,000 108,000 200,000 628,000 72,000 Manufacturing Overhead Accounts Payable 72,000 154,000 Advertising Expense Accounts Payable 154,000 Manufacturing Overhead Depreciation Expense Accumulated Depreciation 67,500 22,500 90,000 Manufacturing Overhead Rent Expense Accounts Payable 92,000 23,000 115,000 417,100 417,100 Work in Process Manufacturing Overhead (predetemined overhead rate $395600/920 DLH =$430 per DLH =970 HOURS * $430 950,000 Finished Goods Work in Process 950,000 2,100,000 2,100,000 Accounts Receivable Sales Cost of Goods Sold Finished Goods 980,000 980,000

Sales Accounts Receivable 2,100,000 (k) 2,100,000 Cost of Goods Sold 980,000 Bal. (b) 275,000 (k) Raw Materials 48,000 290,000 63,000 (a) Bal. Manufacturing Overhead Bal. 950,000 417,100 (b) (d) Work in Process 39,000 275,000 320,000 417,100 101,100 (e) 69,3001 108,000 72,000 67,500 92,000 Bal. Bal. 8,300 Advertising Expense Bal. | 980,000 154,000 Finished Goods 78,000 (k) 950,000 48,000 Bal. Accumulated Depreciation Utilities Expense (8) 90,000 7,700 Accounts Payable Salaries Expense (a) 200,000 (c) 290,000 77,000 72,000 154,000 115,000 Depreciation Expense 22,500 I(h) Rent Expense 1 Salaries & Wages Payable 1 (d) 1 628,000 (h) 123,000

Froya Fabrikker A/S Ques 3 Schedule of Cost of Goods Manufactured 48,000 290,000 338,000 63,000 Direct materials: Raw materials inventory, beginning Purchases of raw materials Materials available for use Raw materials inventory, ending Materials used in production Direct labor Manufacturing overhead applied to work in process Total manufacturing costs Add: Work in process, beginning $275,000 320,000 417,100 1,012,100 39,000 1,051,100 101,100 $950,000 Deduct: Work in process, ending Cost of goods manufactured Ques 4 A) 8,300 Manufacturing Overhead Cost of Goods Sold 8,300 Schedule of cost of goods sold: Finished goods inventory, beginning Add: Cost of goods manufactured Goods available for sale Deduct finished goods inventory, ending Unadjusted cost of goods sold Deduct: Overapplied overhead Adjusted cost of goods sold 78,000 $950,000 1,028,000 48,000 980,000 8,300 $971,700

Froya Fabrikker A/S Income Statement $ $ $ 2,100,000 971,700 1,128,300 Sales Cost of goods sold Gross margin Selling and administrative expenses: Advertising expense Utilities expense Salaries expense Depreciation expense Rent expense Net operating income $ $ $ 154,000 7,700 200,000 22,500 23,000 $ $ $ 407,200 721,100