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 $351,000 of manufacturing overhead for anestimated allocation base of 900 direct labor-hours. The followingtransactions took place during the year:
- Raw materials purchased on account, $265,000.
- Raw materials used in production (all direct materials),$250,000.
- Utility bills incurred on account, $72,000 (85% related tofactory operations, and the remainder related to selling andadministrative activities).
- Accrued salary and wage costs:
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Direct labor (980 hours) | $ | 295,000 |
Indirect labor | $ | 103,000 |
Selling and administrative salaries | $ | 175,000 |
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- Maintenance costs incurred on account in the factory,$67,000
- Advertising costs incurred on account, $149,000.
- Depreciation was recorded for the year, $85,000 (70% related tofactory equipment, and the remainder related to selling andadministrative equipment).
- Rental cost incurred on account, $110,000 (75% related tofactory facilities, and the remainder related to selling andadministrative facilities).
- Manufacturing overhead cost was applied to jobs,$???.
- Cost of goods manufactured for the year,$900,000.
- Sales for the year (all on account) totaled $1,850,000. Thesegoods cost $930,000 according to their job cost sheets.
The balances in the inventory accounts at the beginning of theyear were:
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Raw Materials | $ | 43,000 |
Work in Process | $ | 34,000 |
Finished Goods | $ | 73,000 |
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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.
