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 $378,000 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, $285,000. Raw materials used in production (all direct materials), $270,000. Utility bills incurred on account, $76,000 (85% related to factory operations, and the remainder related to selling and administrative activities). Accrued salary and wage costs: Direct labor (950 hours) $ 315,000 Indirect labor $ 107,000 Selling and administrative salaries $ 195,000 Maintenance costs incurred on account in the factory, $71,000 Advertising costs incurred on account, $153,000. Depreciation was recorded for the year, $89,000 (70% related to factory equipment, and the remainder related to selling and administrative equipment). Rental cost incurred on account, $114,000 (75% 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, $940,000. Sales for the year (all on account) totaled $2,050,000. These goods cost $970,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materials $ 47,000 Work in Process $ 38,000 Finished Goods $ 77,000 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.

Answer 1

As per policy, only four parts of a question is allowed to answer, so answering 1 - 4,

PREDETERMINED OVERHEAD RATE = total overhead / total direct labor hours = 378000/900 = $420/DLH

1) Journal Entries :

Date	Accounts Titles	Debit $	Credit $
1	RM	285000
	AP		285000
	(purchase of RM on account0
2	WIP	270000
	RM		270000
3	MANUF. O/H	64600
	INCOME SUMMARY (selling & adminis.)	11400
	Utility expenses		76000
4	WIP	315000
	MANUF. O/H	107000
	INCOME SUMMARY (selling & adminis.)	195000
	PAYROLL EXPNESES		617000
5	MANUF O/H (maintenance cost)	71000
	AP		71000
6	INCOME SUMMARY	153000
	Advertising expense		153000
7	MANUF O/H	62300
	INCOME SUMMARY (selling & adminis.)	26700
	DEPRECIATION EXP.		89000
8	MANUF O/H	85500
	INCOME SUMMARY (selling & adminis.)	28500
	Rent exp		114000
9	WIP (950*420)	399000
	MANUF O/H		399000
10	FG INVENTORY	940000
	WIP		940000
11	AR	2050000
	SALES REV.		2050000
12	COGS	970000
	FG INVENTORY		970000

2: t-Accounts :

Debit Entries	amount $	Credit Entries	amount $
WIP A/C:
OB	38000	FG INVENTORY	940000
RM	270000	CB	82000
DL	315000
M O/H	399000
RM A/C:
OB	47000	WIP	270000
PURCHASES	285000	CB	62000
FG INVENTORY A/C :
OB	77000	COGS	970000
WIP	940000	CB	47000
MANUF. O/H A/C:
UTILITY	64600	WIP	399000
INDIRECT LAB	107000
MAINTEN COST	71000
DEP	62300
RENT	85500
OVER- APPLIES	8600

3: schedule of cost of goods manufactured :

RM USED	270000
DL USED	315000
M. O/H APPLIED	399000
COST OF MANUFACTURING		984000
ADD: OPENING WIP		38000
TOTAL MANUFACTURING AVAILABLE		1022000
LESS: CLOSING WIP		-82000
COST OF GOODS MANUFACTURED		$940000

4) jOURNAL ENTRY:

DEBIT MANUFACTRING OVERHEAD $8600

CREDIT COGS $8600

(OVER APPLIED ENDED TO COGS)

=============