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 $382,500 of manufacturing overhead for anestimated allocation base of 850 direct labor-hours. The followingtransactions took place during the year:
- Raw materials purchased on account, $300,000.
- Raw materials used in production (all direct materials),$285,000.
- Utility bills incurred on account, $79,000 (80% related tofactory operations, and the remainder related to selling andadministrative activities).
- Accrued salary and wage costs:
| | |
| Direct labor (950 hours) | $ | 330,000 |
| Indirect labor | $ | 110,000 |
| Selling and administrative salaries | $ | 210,000 |
|
- Maintenance costs incurred on account in the factory,$74,000
- Advertising costs incurred on account, $156,000.
- Depreciation was recorded for the year, $92,000 (80%related to factory equipment, and the remainder related to sellingand administrative equipment).
- Rental cost incurred on account, $117,000 (85%related to factory facilities, and the remainder related to sellingand administrative facilities).
- Manufacturing overhead cost was applied to jobs,$???.
- Cost of goods manufactured for the year,$970,000.
- Sales for the year (all on account) totaled$2,200,000. These goods cost $1,000,000 according to their job costsheets.
The balances in the inventory accounts at the beginning of theyear were:
| | |
| Raw Materials | $ | 50,000 |
| Work in Process | $ | 41,000 |
| Finished Goods | $ | 80,000 |
|
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.
