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 and 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 $395,600 of manufacturing overhead for an estimated allocation base of 920 direct labor-hours. The following transactions took place during the year (all purchases and services were acquired on account): a. Raw materials purchased for use in production, $290,000. b. Raw materials requisitioned for use in production (all direct materials), $275,000, C. Utility bills were incurred, $77,000 (90% related to factory operations, and the remainder related to selling and administrative activities). d. Salary and wage costs were incurred: Direct labor (970 hours) Indirect labor Selling and administrative salaries $ 320,000 $ 108,000 $ 200,000 e. Maintenance costs were incurred in the factory, $72,000. f. Advertising costs were incurred, $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 buildings, $115,000 (80% related to factory operations, 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

Answer 1

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

= $395600/920= $430 per direct labor hour

1)

Transaction	General Journal	Debit	Credit
a.	Raw Materials Inventory	$290000
	Accounts Payable		$290000
	(To record materials purchased)
b.	Work in Process Inventory	$275000
	Raw Materials Inventory		$275000
	(To record direct materials used in production)
c.	Manufacturing Overhead (77000*90%)	$69300
	Utilities Expense (77000*10%)	$7700
	Accounts Payable		$77000
	(To record utilities bills incurred on account)
d.	Work in Process Inventory	$320000
	Manufacturing Overhead	$108000
	Salaries Expense	$200000
	Salaries and Wages Payable		$628000
	(To record salary and wages incurred)
e.	Manufacturing Overhead	$72000
	Accounts Payable		$72000
	(To record maintenance costs incurred on account)
f.	Advertising Expense	$154000
	Accounts Payable		$154000
	(To record advertising costs incurred on account)
g.	Manufacturing Overhead (90000*75%)	$67500
	Depreciation Expense (90000*25)	$22500
	Accumulated Depreciation- Equipment		$90000
	(To record depreciation expense)
h.	Manufacturing Overhead (115000*80%)	$92000
	Rent Expense (115000*20%)	$23000
	Accounts Payable		$115000
	(To record rent incurred on account)
i.	Work in Process Inventory ($430*970)	$417100
	Manufacturing Overhead		$417100
	(To record manufacturing overhead applied)
j.	Finished Goods Inventory	$950000
	Work in Process Inventory		$950000
	(To record work in process transferred to finished goods)
k(1)	Accounts Receivable	$2100000
	Sales		$2100000
	(To record sales on account)
k(2)	Cost of Goods Sold	$980000
	Finished Goods Inventory		$980000
	(To record cost of goods sold)

2)

Accounts Receivable					Sales
Beg. Bal.					Beg. Bal.
k(1)	$2100000						2100000	k(1)
End. Bal.	2100000				End. Bal.		2100000
Raw materials					Cost of goods sold
Beg. bal.	$48000				Beg. Bal.
a.	290000	275000	b.		k(2)	980000
					End. Bal.	980000
End. bal.	$63000
Work in process					Manufacturing Overhead
Beg. Bal.	$39000				Beg. Bal.
b.	275000	950000	j.		c.	69300	417100	i.
d.	320000				d.	108000
i.	417100				e.	72000
					g.	67500
End. Bal.	$101100				h.	92000
					End. Bal.		$8300
Finished good					Advertising expense
Beg. Bal.	$78000				Beg. Bal.
j.	950000	980000	k(2)		f.	154000
					End. Bal.	154000
End. Bal.	$48000
Accumulated Depreciation					Utilities Expense
Beg. Bal.					Beg. Bal.
		90000	g.		c.	7700
End. Bal.		90000			End. Bal.	7700
Accounts Payable					Salaries Expense
Beg. Bal.					Beg. Bal.
		290000	a.		d.	200000
		77000	c.
		72000	e.		End. Bal.	200000
		154000	f.
		115000	h.
End. Bal.		708000
Depreciation expense					Salaries & wages payable
Beg. Bal.					Beg. Bal.
g.	22500						628000	d.
End. Bal.	22500				End. Bal.		628000
Rent expense
Beg. Bal.
h.	23000
End. Bal.	23000

3.

Froya Fabrikker A/S
Schedule of Cost of Goods Manufactured
Direct materials:
Beginning raw materials inventory	$48000
Add: Purchase of raw materials	290000
Materials available for use	338000
Less: Ending raw materials inventory	63000
Materials used in production		275000
Direct labor		320000
Manufacturing overhead applied		417100
Total manufacturing costs		1012100
Add: Beginning work in process inventory		39000
		1051100
Less: Ending work in process inventory		101100
Cost of goods manufactured		950000

4)

Event	General Journal	Debit	Credit
1.	Manufacturing overhead	$8300
	Cost of goods sold		$8300
	(To record overapplied overhead close to cost of goods sold)

Froya Fabrikker A/S
Schedule of Cost of Goods Sold
Beginning finished goods inventory	$78000
Add: Cost of goods manufactured	950000
Goods available for sale	1028000
Less: Ending finished goods inventory	48000
Unadjusted cost of goods sold	980000
Less: Overapplied overhead	8300
Adjusted cost of goods sold	$971700

5)

Froya Fabrikker A/S
Income Statement
For the Year Ended
Sales		$2100000
Less: Cost of goods sold		971700
Gross profit		1128300
Less: Selling and administrative expenses
Utilities expense	7700
Salaries expense	200000
Advertising expense	154000
Depreciation expense	22500
Rent expense	23000
Total selling and administrative expenses		407200
Net operating income		$721100

6) Manufacturing overhead applied= Direct labor hours*Predetermined overhead rate

= 30*$430= $12900

Total manufacturing costs= Direct materials+Direct labor+Manufacturing overhead applied

= $9800+10700+12900= $33400

Selling price= Total manufacturing costs*170%

= $33400*170%= $56780

Price per unit= $56780/4= $14195

Price charged for Job 412

$14195

per unit

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