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:

Raw materials purchased on account, $200,000.

Raw materials used in production (all direct materials), $185,000.

Utility bills incurred on account, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities).

Accrued salary and wage costs:

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

Maintenance costs incurred on account in the factory, $54,000.

Advertising costs incurred on account, $136,000.

Depreciation was recorded for the year, $95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment).

Rental cost incurred on account, $120,000 (85% related to factory facilities, and the remainder related to selling and administrative facilities).

Manufacturing overhead cost was applied to jobs, $ ? .

Cost of goods manufactured for the year, $770,000.

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.

Q

1-Raw materials were purchased for use in production, $200,000 on account.

2-Raw materials were requisitioned for use in production (all direct materials), $185,000.

3-Utility bills were incurred on account, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities).

4-Salary and wage costs accrued were $230,000 (Direct labor), $90,000 (Indirect labor), $110,000 (Selling and administrative salaries).

5-Maintenance costs were incurred on account in the factory, $54,000.

6-Advertising costs were incurred on account, $136,000.

7-Depreciation was recorded for the year, $95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment).

8-Entry for rental cost incurred on account on buildings, $120,000 (85% related to factory operations, and the remainder related to selling and administrative facilities).

9-Entry for manufacturing overhead cost applied to jobs.

10-Cost of goods manufactured for the year, $770,000.

11-Sales for the year (all on account) totaled $1,200,000.

12-These goods cost $800,000 according to their job cost sheets.

	Transaction General Journal Debit Credit k(2).

2-

	Froya Fabrikker A/S Schedule of Cost of Goods Manufactured Direct materials: Total raw materials available Materials used in production Total manufacturing cost Cost of goods manufactured

·      

4A-Record the entry to close any balance in the manufacturing overhead account to cost of goods sold.

	Transaction General Journal Debit Credit 1

		Froya Fabrikker A/S Schedule of Cost of Goods Sold

·      

	Froya Fabrikker A/S Income Statement For the Year Ended Selling and administrative expenses: 00000

·      

56,000 Cost of goods manufactured Accounts Receivable Sales Beg. Bal. Beg. Bal. End. Bal. End. Bal. Raw Materials Cost of Goods Sold Beg. Bal. Beg. Bal. End. Bal. End. Bal. Work in Process Manufacturing Overhead Beg. Bal. Beg. Bal. . End. Bal. End. Bal. Finished Goods Advertising Expense Beg. Bal. Beg. Bal. End. Bal. End. Bal. Accumulated Depreciation Utilities Expense Beg. Bal. Beg. Bal. End. Bal. End. Bal. Accounts Payable Salaries Expense Beg. Bal. Beg. Bal. End. Bal. End. Bal. Depreciation Expense Salaries & Wages Payable Beg. Bal. Beg. Bal. End. Bal. End. Bal. Rent Expense Beg. Bal. End. Bal.

Answer 1

Froya Fabrikker A/S
Journal entries
Date	Account title	Debit	Credit
1	Raw material inventory	200000
	Account payable		200000
	(To record Purchase of raw material inventory
2	Work in progress inventory	185000
	Raw material inventory		185000
	(To record Issue of raw material inventory into production process.)
3	Manufacture overhead (70000*90%)	63000
	Utility expense (70000*10%)	7000
	Account payable		70000
	(To record utility expense.)
4	Work in progress inventory	230000
	Manufacture overhead	90000
	Salaries and wages expense	110000
	Salaries and wages payable		430000
	(To record direct, indirect wages and salaries expense.)
5	Manufacture overhead	54000
	Cash		54000
	(To record maintenance expense for factory.)
6	Advertising expense	136000
	Cash		136000
	(To record advertisement expense.)
7	Depreciation expense (95000*20%)	19000
	Manufacture overhead (95000*80%)	76000
	Accumulated depreciation -equipment		95000
	(To Depreciation on factory equipment and selling and administrative equipment.)
8	Manufacture overhead (120000*85%)	102000
	Rent expense (120000*15%)	18000
	Account payable		120000
	(Rental cost incurred on account on buildings for factory and selling facilities.)
9	Work in progress inventory	390000
	Manufacture overhead		390000
	(To record Manufacture overhead Applied to Job.)
10	Finished goods inventory	770000
	Work in progress inventory		770000
	(To record completion of Finished goods inventory.)
11	Account receivable	1200000
	Sales Revenue		1200000
	(To record sales revenue.)
12	Cost of goods sold	800000
	Finished goods inventory		800000
	(To record Finished goods Inventory sold.)
13	Manufacture overhead	5000
	Cost of goods sold		5000
	(To record over applied of manufacture overhead.)

Estimated manufacturing overhead	360000
Estimated direct labor-hours	900
Predetermined overhead rate (360000/900)	$ 400.00
Manufacture overhead Applied (975*400)	390000
Actual Manufacture overhead incurred (63000+90000+54000+76000+102000)	385000
Less: Manufacture overhead Applied	390000
Under (Over) applied of overhead	(5,000)

Froya Fabrikker A/S
Schedule of Cost of goods manufactured
Direct material:
Direct material at beginning	30000
Add: purchase	200000
Total raw materials available	230000
Less: direct material at ending (230000-185000 material used)	45000
Materials used in production	185000
Direct labor	230000
Applied overhead	390000
Total manufacturing cost	805000
Add: beginning work in progress	21000
Total cost of work in progress	826000
Less: ending work in progress (826000- 770000 cost of goods manufactured)	56000
Cost of goods manufactured	770000
Froya Fabrikker A/S
Schedule of Cost of goods Sold
Cost of goods manufactured	770000
Add: Beginning Finished goods Inventory	60000
Inventory available for sale	830000
Less: ending Finished goods Inventory (830000 - 800000 cost of goods sold)	30000
Cost of goods Sold	800000
Add: Under (Over) applied of overhead	(5,000)
Adjusted Cost of goods Sold	795000

Froya Fabrikker A/S
Income statement
Sales revenue	1200000
Less: cost of goods sold (Adjusted)	795000
Gross profit	405000
Less: operating expenses
Utility expense	7000
Salaries and wages expense	110000
Advertising expense	136000
Depreciation expense	19000
Rent expense	18000
Total operating expense	290000
Net income	115000