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 $360,000 of manufacturing overhead for an estimated allocation base of 900 direct labor-hours. The following transactions took place during the year:

1. Raw materials purchased on account, $200,000.
2. Raw materials used in production (all direct materials), $185,000.
3. Utility bills incurred on account, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (975 hours)	$	230,000
Indirect labor	$	90,000
Selling and administrative salaries	$	110,000

1. Maintenance costs incurred on account in the factory, $54,000.
2. Advertising costs incurred on account, $136,000.
3. Depreciation was recorded for the year, $95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment).
4. Rental cost incurred on account, $120,000 (85% related to factory facilities, and the remainder related to selling and administrative facilities).
5. Manufacturing overhead cost was applied to jobs, $ ? .
6. Cost of goods manufactured for the year, $770,000.
7. 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

Credit Sales Requirement (1) No Transaction General Journal 1 (a) Raw Materials Accounts Payable Debit $ 200,000 Requirement (2) Accounts Receivable Beg Bal. $ 1,200,000 Beg Bal. $ 200,000 $ 1,200,000 (k) 2. (b) 185,000 End Bal. $ 1,200,000 End Bal. Work in process Raw Materials $ 1,200,000 $ 185,000 3 (c) Manufacturing overhead Utilities Expense Accounts Payable $ $ 63,000 7,000 Raw Materials Beg Bal. $ 30,000 (a) $ 200,000 $185,000 (b) Cost of goods sold Beg Bal. $ $ 800,000 $ 70,000 4 (d) $ $ $ 230,000 90,000 110,000 End Bal. Work in process Manufacturing overhead Salaries Expense Salaries and wages payable 45,000 End Bal. $800,000 $ 430,000 Manufacturing Overhead 5 (e) $ Manufacturing overhead Accounts payable 54,000 Work In Process $ 21,000 $ 185,000 $770,000 6) $ 230,000 $ 390,000 Beg Bal. (b) (d) 0 Beg Bal. (c) (d) $ 54,000 $ 63,000 $ 390,000 $ 90,000 $ 54,000 $ 76,000 $ 102,000 6 $ Advertising Expense Accounts payable 136,000 $ 136,000 (9) (h) $ 56,000 7 (9) $ 5,000 Manufacturing overhead Depreciation Expense Accumulated Depreciation $ $ 76,000 19,000 $ 95,000 Advertising Expense Finished Goods Beg Bal. $ 60,000 6) $ 770,000 $800,000 (k) Beg Bal. () 8 (h) $ 136,000 Manufacturing overhead Rent Expense Accounts Payable $ $ 102,000 18,000 $ 120,000 End Bal. $ 30,000 End Bal. $ 136,000 9 0 $ Work in process Manufacturing overhead 390,000 Utilities Expense Accumulated Depreciation $ 95,000 (9) $ 390,000 Beg Bal Beg Bal (c) $ 7,000 10 (1) $ 770,000 Finished goods Work in process $ 770,000 End Bal. $ 95,000 End Bal. $ 7,000 11 (k1) Accounts Receivable Sales $ 1,200,000 Accounts Payable Salaries Expense $ 1,200,000 Beg Bal. Beg Bal. (d) $ 110,000 12 (K2) $ 800,000 Cost of goods sold Finished goods $ 800,000 $ 200,000 (a) $ 70,000 (c) $ 54,000 (e) $ 136,000 () $ 120,000 (h) End Bal. $ 110,000 Salaries and Wages Payable End Bal. $ 580,000 Beg Bal. $ 430,000 (d) Depreciation Expense $430,000 Beg Bal. (9) $ 19,000 Rent Expense End Bal. $ 19,000 Beg Bal. $ 18,000 End Bal $ 18,000

Credit Requrement 4a No Transaction General Journal Debt 1 Manufacturing Overhead $5,000 Cost of goods sold $5,000 Requirement (3) Froya Fabrikker As Schedule of cost of goods manufactured Direct materials Raw materials inventory,Beginning $ 30,000 Add: Purchase of Raw materials $ 200,000 Materials available for use $ 230,000 Less : Raw materials inventory, Ending $ 45,000 Materials used in production $ 185,000 Direct labour $ 230,000 Manufacturing overhead applied to work in process $ 390,000 Total manufacturing overhead $ 805,000 Add : Work in process,Beginning $ 21,000 $ 826,000 Less : Work in process, Ending $ 56,000 Cost of goods manufactured $ 770,000 Requirement (5) Froya Fabrikker A/S Income Statement For the Year Ended Sales Cost of goods sold Gross Margin Seling and administrative expense Utilities Expense $ 7,000 Advertising Expense $ 136,000 Salaries Expense $ 110,000 Depreciation Expense $ 19,000 Rent Expense $ 18,000 Total Seling and administrative expense $ 1,200,000 $ 795,000 $ 405,000 $ 290,000 Net Income 9 115,000 Requirement 4(b) Froya Fabrikker A/s Schedule of cost of goods sold Finished goods inventory,Beginning Add: Cost of goods manufactured Goods available for sale Less : Fnished goods inventory, Ending Unadjusted cost of goods sold Less; Overappled overhead Adjusted Cost of goods sold $ 60,000 $ 770,000 $830,000 $ 30,000 $ 800,000 $ 5,000 $ 795,000