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 $372,000 of manufacturing overhead for an estimated allocation base of 1,200 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $240,000. b. Raw materials used in production (all direct materials). $225,000. c Utility bills incurred on account, $67,000 (95% related to factory operations, and the remainder related to selling and administrative activities). d. Accrued salary and wage costs: Direct labor (1,275 hours) Indirect labor Selling and administrative salaries $ 270,000 $ 98,000 $ 150,000 e. Maintenance costs incurred on account in the factory, $62,000 f. Advertising costs incurred on account, $144,000. g. Depreciation was recorded for the year, $80,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $105,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities). Manufacturing overhead cost was applied to jobs, $ ? J. Cost of goods manufactured for the year, $850,000. k. Sales for the year (all on account) totaled $1,600,000. These goods cost $880,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materials Work in Process Pinished Goods $ 38,000 $ 29,000 $ 68,000

Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea fields. The company uses a job-order costing system that applies manufacturing overhead cost to jobs on the basis of direct labo hoursIts predetermined overhead rate was based on a cost formula that estimated $372,000 of manufacturing overhead for an estimated allocation base of 1.200 direct laborhours. The following transactions took place during the year

Answer 1

2)

Accounts Receivable					Sales
Beg. Bal.					Beg. Bal.
k(1)	$1600000						$1600000	k(1)
End. Bal.	$1600000				End. Bal.		$1600000
Raw materials					Cost of goods sold
Beg. bal.	$38000				Beg. Bal.
a.	240000	225000	b.		k(2)	880000
					End. Bal.	880000
End. bal.	$53000
Work in process					Manufacturing Overhead
Beg. Bal.	$29000				Beg. Bal.
b.	225000	850000	j.		c.	63650	395250	i.
d.	270000				d.	98000
i.	395250				e.	62000
					g.	68000
End. Bal.	$69250				h.	94500
					End. Bal.		$9100
Finished goods					Advertising expense
Beg. Bal.	$68000				Beg. Bal.
j.	850000	880000	k(2)		f.	144000
					End. Bal.	144000
End. Bal.	$38000
Accumulated Depreciation					Utilities Expense
Beg. Bal.					Beg. Bal.
		80000	g.		c.	3350
End. Bal.		80000			End. Bal.	3350
Accounts Payable					Salaries Expense
Beg. Bal.					Beg. Bal.
		240000	a.		d.	150000
		67000	c.
		62000	e.		End. Bal.	150000
		144000	f.
		105000	h.
End. Bal.		618000
Depreciation expense					Salaries & wages payable
Beg. Bal.					Beg. Bal.
g.	12000						518000	d.
End. Bal.	12000				End. Bal.		518000
Rent expense
Beg. Bal.
h.	10500
End. Bal.	10500

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

= $372000/1200= $310 per DLH

Manufacturing overhead applied= 1275*$310= $395250

Calculation of Actual manufacturing overhead

Utilities expense= $67000*95%= $63650

Depreciation expense= $80000*85%= $68000

Rent expense= $105000*90%= $94500

3.

Froya Fabrikker A/S
Schedule of Cost of Goods Manufactured
Direct materials:
Beginning raw materials inventory	$38000
Add: Purchase of raw materials	240000
Total raw materials available	278000
Less: Ending raw materials inventory	53000
Materials used in production		225000
Direct labor		270000
Manufacturing overhead applied		395250
Total manufacturing costs		890250
Add: Beginning work in process inventory		29000
		919250
Less: Ending work in process inventory		69250
Cost of goods manufactured		$850000

4-A)

Transaction	General Journal	Debit	Credit
1.	Manufacturing overhead	$9100
	Cost of goods sold		$9100
	(To record overapplied overhead closed to cost of goods sold)

b)

Froya Fabrikker A/S
Schedule of Cost of Goods Sold
Beginning finished goods inventory	$68000
Add: Cost of goods manufactured	850000
Cost of goods available for sale	918000
Less: Ending finished goods inventory	38000
Unadjusted cost of goods sold	880000
Less: Overapplied overhead	9100
Adjusted cost of goods sold	$870900

5)

Froya Fabrikker A/S
Income Statement
For the Year Ended
Sales		$1600000
Less: Cost of goods sold		870900
Gross profit		729100
Less: Selling and administrative expenses
Utilities expense (67000*5%)	3350
Salaries expense	150000
Advertising expense	144000
Depreciation expense (80000*15%)	12000
Rent expense (105000*10%)	10500
Total selling and administrative expenses		319850
Net operating income		$409250

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