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 and 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 $351,000 of manufacturing overhead for an estimated allocation base of 900 direct labor-hours. The following transactions took place during the year (all purchases and services were acquired on account): a. Raw materials purchased for use in production, $265,000. b. Raw materials requisitioned for use in production (all direct materials), $250,000 c. Utility bills were incurred, $72,000 (85% related to factory operations, and the remainder related to selling and administrative activities). d. Salary and wage costs were incurred Direct labor (980 hours) Indirect labor Selling and administrative salaries $ 295,000 $ 103,000 $ 175,000 e. Maintenance costs were incurred in the factory, $67,000. f. Advertising costs were incurred, $149,000. g. Depreciation was recorded for the year, $85,000 (70% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on buildings, $110,000 (75% related to factory operations, and the remainder related to selling and administrative facilities). i. Manufacturing overhead cost was applied to jobs, $ ? j. Cost of goods manufactured for the year, $900,000. k. Sales for the year (all on account) totaled $1,850,000. These goods cost $930,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw materials Work in process Finished Goods $ 43,000 $ 34,000 $ 73,000 Required: 1.Prepare journal entries to record the above data. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.)

Answer 1

The entries in the books of Froya Fabrikker will be as follow:

Post S.No. Accounts and Explanations Debit ($) Credit ($) Ref. Pe a. 265,000.00 Inventory Bank Being Inventory purhased) 265,000.00 b. 250,000.00 Direct Material expenses Inventory 250,000.00 Being raw material used for production) c. 61,200.00 10,800.00 Direct utility cost (72000@85%) Indirect utility cost(72000@15%) Bank Being utility cost incurred) Reine di 72,000.00 d Direct labour Indirect labour Selling and administrative salaries Bank Being salary and wages experts es incurred) 295,000.00 103,000.00 175.000.00 5 73.000.00 e. 67.000.00 Maintenace cost Bank Being maintenance expers es incurred 67,000.00 67.000.00 Advertisement costs Bank (Being advertisement expenses incurred) 67,000.00 59,500.00 Depreciation Direct (85,000 @70%) Factory Equiment Being depreciation recorded) 59,500.00 25,500.00 Depreciation Direct (85,000 @ 30%) Selling and administrative equipment Being depreciation recorded 25,500.00 h 82,500.00 27,500.00 Rental expenses - Direct (110000 @ 75%) Rental expenses - Indirect (110000 @25% Bank Being rental expenses incurred) 110,000.00 382,200.00 382,200.00 Factory overheads cost Bank (Being factory overheads incurred in ratio of labour hours) No journal entry required 1.850.000.00 Bank Sales Being sales recorded) 1.850,000.00

W.N.

-X 980 351,000 Manufacturing overheads = = 900 = 382,200