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.

Accounts Receivable						Sales
Beg. Bal.	not attempted		not attempted			Beg. Bal.	not attempted	not attempted
			not attempted	not attempted		not attempted	not attempted	not attempted	not attempted
not attempted	not attempted		not attempted	not attempted		not attempted	not attempted	not attempted	not attempted
End. Bal.						End. Bal.
Raw Materials						Cost of Goods Sold
Beg. Bal.		not attempted				Beg. Bal.	not attempted	not attempted
				b		not attempted	not attempted	not attempted	not attempted
		not attempted		not attempted		not attempted	not attempted	not attempted	not attempted
		not attempted		not attempted		End. Bal.
End. Bal.
Work in Process						Manufacturing Overhead
Beg. Bal.			not attempted			Beg. Bal.	not attempted	not attempted
	t		not attempted	not attempted		not attempted	not attempted	not attempted	not attempted
			not attempted	not attempted		not attempted	not attempted	not attempted	not attempted
			not attempted	not attempted		not attempted	not attempted	not attempted	not attempted
not attempted			not attempted	not attempted		not attempted	not attempted	not attempted	not attempted
End. Bal.						not attempted	not attempted	not attempted	not attempted
						not attempted	not attempted	not attempted	not attempted
						End. Bal.
Finished Goods						Advertising Expense
Beg. Bal.						Beg. Bal.	not attempted	not attempted
						not attempted	not attempted	not attempted	not attempted
						not attempted	not attempted	not attempted	not attempted
						End. Bal.
End. Bal.
Accumulated Depreciation						Utilities Expense
Beg. Bal.						Beg. Bal.	not attempted	not attempted
						not attempted	not attempted	not attempted	not attempted
						not attempted	not attempted	not attempted	not attempted
End. Bal.						End. Bal.
Accounts Payable						Salaries Expense
Beg. Bal.						Beg. Bal.	not attempted	not attempted
						not attempted	not attempted	not attempted	not attempted
						not attempted	not attempted	not attempted	not attempted
						End. Bal.
End. Bal.
Depreciation Expense						Salaries & Wages Payable
Beg. Bal.						Beg. Bal.	not attempted	not attempted
						not attempted	not attempted	not attempted	not attempted
						not attempted	not attempted	not attempted	not attempted
End. Bal.						End. Bal.
Rent Expense
Beg. Bal.
End. Bal.

Answer 1

Raw material inventory
date	Debit	credit	balance
Beg. Bal			30000
1	200000		230000
2		185000	45000
End. Bal	45000
Work in progress inventory
date	Debit	credit	balance
Beg. Bal			21000
2	185000		206000
4	230000		436000
9	390000		826000
10		770000	56000
End. Bal	56000
Manufacture overhead
date	Debit	credit	balance
Beg. Bal			0
3	63000		63000
4	90000		153000
5	54000		207000
7	76000		283000
8	102000		385000
9		390000	-5000
13	5000		0
End. Bal	0
utility expense
date	debit	credit	Balance
Beg. Bal			0
3	7000		7000
End. Bal	7000
Rent expense
date	debit	credit	Balance
Beg. Bal			0
8	18000		18000
End. Bal	18000
Account receivable
date	debit	credit	Balance
Beg. Bal			0
11	1200000		1200000
End. Bal	1200000

salaries and wages expense
date	debit	credit	Balance
Beg. Bal			0
4	110000		110000
End. Bal	110000
Cash
date	debit	credit	Balance
Beg. Bal			0
5		54000	-54000
6		136000	-190000
End. Bal	-190000
advertising expense
date	debit	credit	Balance
Beg. Bal			0
6	136000		136000
End. Bal	136000
Depreciation expense
date	debit	credit	Balance
Beg. Bal			0
7	19000		19000
End. Bal	19000
Finished goods inventory
date	debit	credit	Balance
Beg. Bal			60000
10	770000		830000
12		800000	30000
End. Bal	30000
Cost of goods sold
date	Debit	credit	Balance
Beg. Bal			0
12	800000		800000
13		5000	795000
End. Bal	795000

Account payable
date	debit	credit	Balance
Beg. Bal			0
1		200000	200000
3		70000	270000
8		120000	390000
End. Bal		390000
salaries and wages payable
date	debit	credit	Balance
Beg. Bal			0
4		430000	430000
End. Bal		430000
Accumulated depreciation –equipment
date	debit	credit	Balance
Beg. Bal			0
7		95000	95000
End. Bal		95000
Sales Revenue
date	debit	credit	Balance
Beg. Bal			0
11		1200000	1200000
End. Bal		1200000

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