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 $399,000 of manufacturing overhead for an estimated allocation base of 1,050 direct labor-hours. The following transactions took place during the year:

1. Raw materials purchased on account, $280,000.
2. Raw materials used in production (all direct materials), $265,000.
3. Utility bills incurred on account, $75,000 (80% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (1,100 hours)	$	310,000
Indirect labor	$	106,000
Selling and administrative salaries	$	190,000

1. Maintenance costs incurred on account in the factory, $70,000
2. Advertising costs incurred on account, $152,000.
3. Depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment).
4. Rental cost incurred on account, $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities).
5. Manufacturing overhead cost was applied to jobs, $ ? .
6. Cost of goods manufactured for the year, $930,000.
7. Sales for the year (all on account) totaled $2,000,000. These goods cost $960,000 according to their job cost sheets.

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

Raw Materials	$	46,000
Work in Process	$	37,000
Finished Goods	$	76,000

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.)

Answer 1

1)

Journal entries

No	Transaction	General journal	Debit ($)	Credit ($)
1	a	Raw material	280000
		Accounts payable		280000
2	b	Work in process	265000
		Raw materials		265000
3	c	Manufacturing Overhead (75000*80%)	60000
		Utilities Expense (75000*20%)	15000
		Utilities Payable		75000
4	d	Work in Process Inventory	310000
		Manufacturing Overhead	106000
		Selling and Administrative Salaries	190000
		Salaries and Wages Payable		606000
5	e	Manufacturing Overhead	70000
		Accounts Payable		70000
6	f	Advertising Expense	152000
		Accounts payable		152000
7	g	Manufacturing Overhead (88000*8%)	74800
		Depreciation Expense (88000*15%)	13200
		Accumulated Depreciation		88000
8	h	Manufacturing Overhead (113000*90%)	101700
		Rent Expense (113000*10%)	11300
		Rent Payable		113000
9	i	work in process	418000
		Manufacturing overhead (399000/1050)*1100		418000
10	j	Finished goods inventory	930000
		Work in process inventory		930000
11	k	Accounts receivable	2000000
		Sales revenue		2000000
12		Cost of goods sold	960000
		Finished goods inventory		960000

2)

T-accounts

Raw materials

Beg. Bal	46000	b	265000
a	28000
End. Bal	61000

Work in process

Beg. Bal	37000	J	930000
b	265000
d	310000
I	418000
	100000

Finished goods inventory

Beg. Bal	76000	k	960000
J	930000
End. Bal	46000

Manufacturing overhead

c	60000	i	418000
d	106000
e	70000
g	74800
h	101700
		Bal.	5500