Question

HW Chpt 2&3 Help 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: 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 activities). d. Accrued salary and wage costs: Direct labor (1,085 hours) Indirect labor Selling and administrative salaries $ 285,000 $ 101,000 $ 165,000 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)

Event	Account titles and explanation	Debit	Credit
a.	Raw Materials Inventory	$255000
	Accounts Payable		$255000
	(To record materials purchased)
b.	Work in Process Inventory	$240000
	Raw Materials Inventory		$240000
	(To record direct materials used in production)
c.	Manufacturing Overhead ($70000*95%)	$66500
	Utilities Expense ($70000*5%)	$3500
	Accounts Payable		$70000
	(To record utilities bills incurred on account)
d.	Work in Process Inventory	$285000
	Manufacturing Overhead	$101000
	Salaries Expense	$165000
	Salaries and Wages Payable ($285000+101000+165000)		$551000
	(To record salary and wages incurred)
e.	Manufacturing Overhead	$65000
	Accounts Payable		$65000
	(To record maintenance costs incurred on account)
f.	Advertising Expense	$147000
	Accounts Payable		$147000
	(To record advertising costs incurred on account)
g.	Manufacturing Overhead ($83000*80%)	$66400
	Depreciation Expense ($83000*20%)	$16600
	Accumulated Depreciation : Equipment		$83000
	(To record depreciation expense)
h.	Manufacturing Overhead ($108000*85%)	$91800
	Rent Expense ($108000*15%)	$16200
	Accounts Payable		$108000
	(To record rent incurred on account)
i.	Work in Process Inventory ($370*1085)	$401450
	Manufacturing Overhead		$401450
	(To record manufacturing overhead applied)
j.	Finished Goods Inventory	$880000
	Work in Process Inventory		$880000
	(To record work in process transferred to finished goods)
k.	Accounts Receivable	$1750000
	Sales		$1750000
	(To record sales on account)
	Cost of Goods Sold	$910000
	Finished Goods Inventory		$910000
	(To record cost of goods sold)

Predetermined overhead rate= Estimated manufacturing overhead/Estimated direct labor hours

= $373700/1010= $370 per direct labor hour

Raw materials inventory					Work in process inventory
Beg. bal.	$41000	240000	(b)		Beg. bal.	$32000	880000	(j)
(a)	255000				(b)	240000
					(d)	285000
End. bal.	$56000				(i)	401450
Finished goods inventory					End. bal.	$78450
Beg. bal.	$71000	910000	(k)
(j)	880000				Manufacturing overhead
					(c)	66500	401450	(i)
End. bal.	$41000				(d)	101000
					(e)	65000
Accounts payable					(g)	66400
		$255000	(a)		(h)	91800
		70000	(c)
		65000	(e)		End. bal.		10750
		147000	(f)
		108000	(h)		Utilities expense
					(c)	3500
End. bal.		$645000
					End. bal.	3500
Salaries expense
(d)	165000				Salaries and wages payable
							551000	(d)
End. bal.	165000
					End. bal.		551000
Advertising expense
(f)	147000				Depreciation expense
					(g)	16600
End. bal.	147000
					End. bal.	16600
Accumulated depreciation- Equipment
		83000	(g)		Rent expense
					(h)	16200
End. bal.		83000
					End. bal.	16200
Accounts receivable
(k)	1750000				Sales
							1750000	(k)
End. bal.	1750000
					End. bal.		1750000
Cost of goods sold
(k)	910000
End. bal.	910000

3.

Froya Fabrikker
Schedule of Cost of Goods Manufactured
Direct materials:
Beginning raw materials inventory	$41000
Add: Purchase of raw materials	255000
Total raw materials available for use	296000
Less: Ending raw materials inventory	-56000
Direct materials used in production		$240000
Direct labor		285000
Manufacturing overhead applied		401450
Total manufacturing costs		926450
Add: Beginning work in process inventory		32000
Total cost of work in process		958450
Less: Ending work in process inventory		-78450
Cost of goods manufactured		$880000

4-A) Actual manufacturing cost= $66500+101000+65000+66400+91800= $390700

Overapplied or underapplied overhead= Actual manufacturing cost-Applied manufacturing costs

= $390700-401450= $10750 overapplied

Event	Account titles and explanation	Debit	Credit
	Manufacturing overhead	$10750
	Cost of goods sold		$10750
	(To record overapplied manufacturing overhead close to cost of goods sold)

b)

Froya Fabrikker
Schedule of Cost of goods sold
Beginning finished goods inventory	$71000
Add: Cost of goods manufactured	880000
Cost of goods available for sale	951000
Less: Ending finished goods inventory	-41000
Unadjusted cost of goods sold	910000
Less: Overapplied overhead	-10750
Adjusted cost of goods sold		899250

5)

Froya Fabrikker
Sales		$1750000
Less: Cost of goods sold		-899250
Gross profit		850750
Less: Selling and administrative expenses
Utilities expense	$3500
Salaries expense	165000
Advertising expense	147000
Depreciation expense	16600
Rent expense	16200
Total selling and administrative expenses		-348300
Net operating income		$502450