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 $329,000 of manufacturing overhead for an estimated allocation base of 940 direct labor-hours.

The following transactions took place during the year:

Raw materials purchased on account, $205,000.

Raw materials used in production (all direct materials), $190,000.

Utility bills incurred on account, $60,000 (90% related to factory operations, and the remainder related to selling and administrative activities).

Accrued salary and wage costs:

Direct labor (1,015 hours) $ 235,000

Indirect labor $ 91,000

Selling and administrative salaries $ 115,000

Maintenance costs incurred on account in the factory, $55,000

Advertising costs incurred on account, $137,000.

Depreciation was recorded for the year, $85,000 (70% related to factory equipment, and the remainder related to selling and administrative equipment).

Rental cost incurred on account, $110,000 (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, $780,000.

Sales for the year (all on account) totaled $1,250,000. These goods cost $810,000 according to their job cost sheets.

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

Raw Materials $ 31,000

Work in Process $ 22,000

Finished Goods $ 61,000

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