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 $373,700 of manufacturing overhead for an estimated allocation base of 1,010 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, $255,000.

b. Raw materials requisitioned for use in production (all direct materials), $240,000.

c. Utility bills were incurred, $70,000 (95% related to factory operations, and the remainder related to selling and administrative activities).

d. Salary and wage costs were incurred:

Direct labor (1,085 hours) $285,000

Indirect labor $101,000

Selling and administrative salaries $165,000

e. Maintenance costs were incurred in the factory, $65,000.

f. Advertising costs were incurred, $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 buildings, $108,000 (85% 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, $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.

The balances in the inventory accounts at the beginning of the year were:

Raw materials $41,000

Work in process $32,000

Finished Goods $71,000

Required:

1.Prepare journal entries to record the above data. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2.Post your entries to T-accounts. (Don’t forget to enter the opening inventory balances below.) Determine the ending balances in the inventory accounts and in the Manufacturing Overhead account.

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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

5. Prepare an income statement for the year.

Answer 1