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 $357,000 of manufacturing overhead for an estimated allocation base of 1,020 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, $260,000.
b.	Raw materials requisitioned for use in production (all direct materials), $245,000.
c.	Utility bills were incurred, $71,000 (80% related to factory operations, and the remainder related to selling and administrative activities).
d.	Salary and wage costs were incurred:

  

Direct labor (1,095 hours)	$	290,000
Indirect labor	$	102,000
Selling and administrative salaries	$	170,000

  

e.	Maintenance costs were incurred in the factory, $66,000.
f.	Advertising costs were incurred, $148,000.
g.	Depreciation was recorded for the year, $84,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).
h.	Rental cost incurred on buildings, $109,000 (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, $890,000.
k.	Sales for the year (all on account) totaled $1,800,000. These goods cost $920,000 according to their job cost sheets.

  

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

Raw materials	$	42,000
Work in process	$	33,000
Finished Goods	$	72,000
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 above.) Determine the ending balances in the inventory accounts and in the Manufacturing Overhead account.    3. Prepare a schedule of cost of goods manufactured.          4. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. 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.          6. Job 412 was one of the many jobs started and completed during the year. The job required $9,200 in direct materials and 32 hours of direct labor time at a total direct labor cost of $10,100. If the job contained five units and the company billed at 70% above the unit product cost on the job cost sheet, what price per unit would have been charged to the customer?

Answer 1

		Debit	Credit
a)	Raw material	260000
	account payable		260000
b)	Work in process	245000
	Raw material		245000
c)	Factory overhead	56800
	Selling overhead	14200
	Accounts payable		71000
d)	Work in Process	290000
	Factory overhead	102000
	Salary expenses	170000
	Wages and Salaries payable		562000
e)	Factory overhead	66000
	Accounts payable		66000
f)	Advertising expenses	148000
	accounts payable		148000
g)	Factory overhead	63000
	Depreciation	21000
	Accumulated Depreciation		84000
h)	Factory overhead	87200
	Rent	21800
	Accounts payable		109000
i)	Work in process	383250
	Factory overhead		383250
j)	Finished goods	890000
	Work in process		890000
k)	Accounts receivable	1800000
	Sales		1800000
l)	Cost of goods sold	920000
	Finished goods		920000

Pre determined overhead rate = Factory overhead cost applied / Allocation base that is direct labour hour

357000/1020 = $350 per hour

therefore overhead will be = 350*1095= 383250

2 Answer) Raw material Account

	Debit		Credit
	260000		245000