Question

Eroya 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 $360,000 of manufacturing overhead for an estimated allocation base of 900 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $200,000. b. Raw materials used in production (all direct materials), $185,000. c. Utility bills incurred on account, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities). d. Accrued salary and wage costs: Direct labor (975 hours) $ 230,000 Indirect labor $ 90,000 Selling and administrative salaries$ 110,000 e. Maintenance costs incurred on account in the factory, S54,000. f. Advertising costs incurred on account, $136,000. 8. Depreciation was recorded for the year, $95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $120,000 (85% related to factory facilities, and the remainder related to selling and administrative facilities). i. Manufacturing overhead cost was applied to jobs, S ? j. Cost of goods manufactured for the year, S770,000. k. Sales for the year (all on account) totaled $1,200,000. These goods cost $800,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materials $30,000 Work in Process $21,000 Finished Goods $60,000 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

1journal entries

(a)

Dr	Raw material inventory	200000
Cr	accounts payable	200000

(b)

Dr	work in process	185000
Cr	Raw material inventory	185000

(c)

Dr	manufacturing overhead	63000
Dr	utility expenses	7000
Cr	utilities payable	70000

(d)

Dr	work in process	230000
Dr	manufacturing overhead	90000
Dr	selling and administrative salaries	110000
Cr	wages payable	430000

(e)

Dr	manufacturing overhead	54000
Cr	accounts payable	54000

(f)

Dr	advertising expenses	136000
Cr	accounts payable	136000

(g)

Dr	manufacturing overhead	76000
Dr	depreciation expenses	19000
Cr	accumulated depreciation	95000

(h)

Dr	manufacturing overhead	102000
Dr	rental expenses	18000
Cr	rental payable	120000

(I).

predetermined overhead rate= 360000/900=400per direct labour hour

Applied overhead=975*400=390000

Dr	work in process	390000
Cr	manufacturing overhead	390000

(j)

Dr	finished goods	770000
Cr	work in process	770000

(k)

Dr	account receivable	1200000
Cr	sales revenue	1200000
Dr	cost of goods sold	800000
Cr	finished goods	800000

2.raw material inventory

Beginning balance	30000	work in process	185000
Accounts payable	200000	balance	45000

work in process

Beginning balance	21000	finished goods	770000
Raw material inventory	185000
Wages payable	230000	balance	56000
Manufacturing overhead	390000

Finished goods

Beginning balance	60000	cost of goods sold. 800000
Work in process	770000	balance. 30000

Manufacturing overhead

Utilities payable	63000	work in process	390000
Wages payable	90000
Accounts payable	54000
Accumulated depreciation	76000
Rental payable	102000	balance (over applied)	5000

3.

Schedule of cost of goods manufactured

Direct material	185000
Direct labour	230000
Manufacturing overhead	390000
Total manufacturing cost	805000
Add beginning work in process	21000
Less ending work in process	56000
cost of goods manufactured	770000

4A.

Dr	manufacturing overhead	5000
Cr	cost of goods sold	5000

4B

​​​​​ Schedule of cost of goo

Beginning finished goods	60000
Cost of goods manufactured	770000
Cost of goods available for sale	830000
Less ending finished goods	30000
Unadjusted cost of goods sold	800000
Less over applied overhead	5000
adjusted cost of goods sold	795000

5.income statement

Revenue	1200000
Less cost of goods sold	795000
Gross margin	405000
Less expense
Utilities expenses	7000
Salaries	110000
Advertising	136000
Depreciation	19000
Rental	18000
Operating income	115000

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