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 $351,500 of manufacturing overhead for an estimated allocation base of 950 direct labor-hours. The following transactions took place during the year:

1. Raw materials purchased on account, $215,000.
2. Raw materials used in production (all direct materials), $200,000.
3. Utility bills incurred on account, $62,000 (85% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (1,025 hours)	$	245,000
Indirect labor	$	93,000
Selling and administrative salaries	$	125,000

1. Maintenance costs incurred on account in the factory, $57,000
2. Advertising costs incurred on account, $139,000.
3. Depreciation was recorded for the year, $87,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment).
4. Rental cost incurred on account, $112,000 (85% 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, $800,000.
7. Sales for the year (all on account) totaled $1,350,000. These goods cost $830,000 according to their job cost sheets.

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

Raw Materials	$	33,000
Work in Process	$	24,000
Finished Goods	$	63,000

Required:

1. Prepare journal entries to record the preceding transactions.

a. The raw materials were purchased for use in production, $215,000 on account.

b. The raw materials used in production (all direct materials), $200,000.

c.The utility bills were incurred on account, $62,000 (85% related to factory operations, and the remainder related to selling and administrative activities).

d. The salary and wage costs accrued were $245,000 (Direct labor), $93,000 (Indirect labor), $125,000 (Selling and administrative salaries).

e. The maintenance costs were incurred on account in the factory, $57,000.

f. The advertising costs were incurred on account, $139,000.

g. The depreciation was recorded for the year, $87,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment).

h. The entry for rental cost incurred on account on buildings, $112,000 (85% related to factory facilities, and the remainder related to selling and administrative facilities).

i. The entry for manufacturing overhead cost applied to jobs.

j. The cost of goods manufactured for the year, $800,000.

k. The sales for the year (all on account) totaled $1,350,000.

l. The goods cost $830,000 according to their job cost sheets.

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.

Answer 1