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 $336,000 of manufacturing overhead for an estimated allocation base of 1,050 direct labor-hours. The following transactions took place during the year:

Raw materials purchased on account, $245,000.

Raw materials used in production (all direct materials), $230,000.

Utility bills incurred on account, $68,000 (85% related to factory operations, and the remainder related to selling and administrative activities).

Accrued salary and wage costs:

Direct labor (1,125 hours)	$	275,000
Indirect labor	$	99,000
Selling and administrative salaries	$	155,000

Maintenance costs incurred on account in the factory, $63,000

Advertising costs incurred on account, $145,000.

Depreciation was recorded for the year, $81,000 (70% related to factory equipment, and the remainder related to selling and administrative equipment).

Rental cost incurred on account, $106,000 (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, $860,000.

Sales for the year (all on account) totaled $1,650,000. These goods cost $890,000 according to their job cost sheets.

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

Raw Materials	$	39,000
Work in Process	$	30,000
Finished Goods	$	69,000

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!

thanks

Answer 1

1. Predetermined Overhead rate = Estimated manufacturing overhead /Estimated direct labor

=336000/1050 dlh

=$320 per hr

Journal Entries

No	Account Titles and Explanation	Debit	Credit
a	Raw Material Inventory	$        245,000
	Accounts Payable		$     245,000
b	Work in Process Inventory	$        230,000
	Raw Material Inventory		$     230,000
c	Manufacturing Overhead (85%)	$           57,800
	Utility Expenses (15%)	$           10,200
	Accounts Payable		$       68,000
d	Work in Process Inventory	$        275,000
	Manufacturing Overhead	$           99,000
	Salaries Expenses	$        155,000
	Wages Payable		$     529,000
e	Manufacturing Overhead	$           63,000
	Accounts Payable		$       63,000
f	Advertisement Expenses	$        145,000
	Accounts Payable		$     145,000
g	Manufacturing Overhead (70%)	$           56,700
	Depreciation Expenses (30%)	$           24,300
	Accumulated Depreciation		$       81,000
h)	Manufacturing Overhead	$           79,500
	Rent Expenses	$           26,500
	Accounts Payable		$     106,000
i	Work in Process Inventory ($320*1125 hrs)	$        360,000
	Manufacturing Overhead		$     360,000
J	Finished Good Inventory	$        860,000
	Work in Process Inventory		$     860,000
k	Accounts Receivable	$     1,650,000
	Sale		$ 1,650,000
	(To record the sale )
	Cost of Good Sold	$        890,000
	Finished Good Inventory		$     890,000
	(To record the cost of the sale)

b) Posting

Raw Material Inventory					Work in process Inventory					Accounts Payable
Beg	39000	$230,000	b		Beg	30000	$    860,000	j				$   245,000	a
a	$245,000				b	$    230,000						$      68,000	c
					d	$    275,000						$      63,000	e
Bal	$   54,000				i	$    360,000						$   145,000	f
					Bal	$      35,000						$   106,000	h
Finished Good Inventory
Beg	69000	$890,000	k
j	$860,000
					Manufacturing Overhead
					c	$      57,800	$    360,000	i
Bal	$   39,000				d	$      99,000				Cost of Good Sold
					e	$      63,000				k	$    890,000
Utility Expenses					g	$      56,700
c	$   10,200				h	$      79,500
					Bal	$         4,000
										Wages Payable
												$   529,000	d
Advertisement Expenses					Salaries Expenses
f	$145,000				d	$    155,000
										Accumulated Depreciation
												$      81,000	g
Rent Expenses					Depreciation Expenses
h	$   26,500				g	$      24,300
										Sale
												$1,650,000	k
					Account recievable
					k	$1,650,000

3. Schedule of cost of goods manufactured
Direct Material
Raw Material Invenory:Beginning	$      39,000
Add: Purchases of Raw Material	$    245,000
Raw Material Available	$    284,000
Deduct: Raw Material Invenory: Ending	$      54,000
Raw Material Used in production	$    230,000
Direct Labor	$    275,000
Manufacturing Overhead applied to Work in process	$    360,000
Total Manufacturing Cost	$    865,000
Add:Beginning Work in process Inventory	$      30,000
Deduct: Ending Work in process Inventory	$        4,000
Cost of Good Manufactured	$    891,000

4A

Account Titles and Explanation	Debit	Credit
Manufacturing Overhead	4000
Cost of Good Sold		4000

4B. Schedule of cost of goods sold

The schedules of cost of goods sold
Finished Goods Inventory Beginning	$         69,000
Add: Cost of Good Manufactured	$      891,000
Cost of Goods Available for sale	$      960,000
Deduct: Finished Goods Inventory Ending	$         39,000
Unadjusted Cost of Good Sold	$      921,000
Less: Overapplied Overhead	$           4,000
Adjusted Cost of Good Sold	$      917,000

Note:- As per guidelines I have answered first four parts of the question.