Froya Fabrikker A/S of Bergen, Norway, is a small company thatmanufactures specialty heavy equipment for use in North Sea oilfields. The company uses a job-order costing system that appliesmanufacturing overhead cost to jobs on the basis of directlabor-hours. Its predetermined overhead rate was based on a costformula that estimated $349,800 of manufacturing overhead for anestimated allocation base of 1,060 direct labor-hours. Thefollowing transactions took place during the year:
Raw materials purchased on account, $230,000.
Raw materials used in production (all direct materials),$215,000.
Utility bills incurred on account, $65,000 (85% related tofactory operations, and the remainder related to selling andadministrative activities).
Accrued salary and wage costs:
| | |
| Direct labor (1,135 hours) | $ | 260,000 |
| Indirect labor | $ | 96,000 |
| Selling and administrativesalaries | $ | 140,000 |
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Maintenance costs incurred on account in the factory,$60,000
Advertising costs incurred on account, $142,000.
Depreciation was recorded for the year, $90,000 (75% related tofactory equipment, and the remainder related to selling andadministrative equipment).
Rental cost incurred on account, $115,000 (80% related tofactory facilities, and the remainder related to selling andadministrative facilities).
Manufacturing overhead cost was applied to jobs, $???.
Cost of goods manufactured for the year, $830,000.
Sales for the year (all on account) totaled $1,500,000. Thesegoods cost $860,000 according to their job cost sheets.
The balances in the inventory accounts at the beginning of theyear were:
| | |
| Raw Materials | $ | 36,000 |
| Work in Process | $ | 27,000 |
| Finished Goods | $ | 66,000 |
Required: 1. Prepare journal entries to record the precedingtransactions. 2. Post your entries to T-accounts. (Don’t forget to enter thebeginning inventory balances above.) 3. Prepare a schedule of cost of goods manufactured. 4A. Prepare a journal entry to close any balance in theManufacturing Overhead account to Cost of Goods Sold. 4B. Prepare a schedule of cost of goods sold. 5. Prepare an income statement for the year. |
