Question

Problem 3.15 Journal Entries; T-Accounts; Financial Statements (LO3-1, LO3-2, LO3-3, LO3-4) Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea ol felds. 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 $380,000 of manufacturing overhead for an estimated allocation base of 1,000 direct labor hours. The following transactions took place during the year a. Raw materials purchased on account, $275.000 b. Raw materials used in production (all direct materials) $260,000 c. Utility bills incurred on account, $74,000 (95% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs: Direct Labor (1.100 hours) Indirect labor Selling and administrative salaries $ 305,000 $ 105,000 $185.000 e. Maintenance costs incurred on account in the factory, 569,000 Advertising costs incurred on account, $151000 g. Depreciation was recorded for the year, $87,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $112.000 (85% related to factory facilities, and the remainder related to selling and administrative facilities). I Manufacturing overhead cost was applied to jobs. $ ? Cost of goods manufactured for the year. $920,000 k. Sales for the year (all on account totaled $1,950,000. These goods cost $950,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materials Work in Process TinLahad goods $ 45,000 $36,000 $75,000

Answer 1

275,000 Raw Materials Accounts Payable 275,000 260,000 Work in Process Raw Materials 260,000 Manufacturing Overhead Utilities Expense Accounts Payable 70,300 3,700 74,000 d. Work in Process Manufacturing Overhead Salaries Expense Salaries and Wages Payable 305,000 105,000 185,000 595,000 69,000 Manufacturing Overhead Accounts Payable 69,000 151,000 Advertising Expense Accounts Payable 151,000 Manufacturing Overhead Depreciation Expense Accumulated Depreciation 69,600 17,400 87,000 Manufacturing Overhead Rent Expense Accounts Payable 95,200 16,800 112,000 418,000 418,000 Work in Process Manufacturing Overhead (predetemined overhead rate $380000/1000 DLH =$380 per DLH =1100 HOURS * $380 920,000 Finished Goods Work in Process 920,000 1,950,000 1,950,000 Accounts Receivable Sales Cost of Goods Sold Finished Goods 950,000 950,000

Sales Ik) Accounts Receivable 1,950,000 1,950,000 Cast of Goods Sold 950,000 (b) 260,000 (k) Bal. la) Bal. Raw Materials 45,000 275,000 60,000 Manufacturing Overhead 920,000 lo 418,000 | Bal. (b) lid) i) Bal. Work in Process 36,000 JO 260,000 305,000 418.no 99,000 70,300 105,000 69,000 69,600 95,200 (h) Advertising Expense 950.000 (f) 151,000 Bal. 0) Bal. Finished Goods 75,000 ik) 920,000 45,000 Utilities Expense Accumulated Depreciation LE) 87,000 c) 3,700 Salaries Expense Tid) 185,000 Accounts Pavable lial lic) Jiel if (h) 275,000 74,000 69,000 151,000 112,000 Depreciation Expense 1) L. 17,400 Rent Expense Salaries & Wages Payable id) 595,000 t h) 16,800

Froya Fabrikker A/S Ques 3 Schedule of Cost of Goods Manufactured 45,000 275,000 320,000 60,000 Direct materials: Raw materials inventory, beginning Purchases of raw materials Materials available for use Raw materials inventory, ending Materials used in production Direct labor Manufacturing overhead applied to work in process Total manufacturing costs Add: Work in process, beginning $260,000 305,000 418,000 983,000 36,000 1,019,000 99,000 $920,000 Deduct: Work in process, ending Cost of goods manufactured A) 8,900 Manufacturing Overhead Cost of Goods Sold Schedule of cost of goods sold: Finished goods inventory, beginning Add: Cost of goods manufactured Goods available for sale Deduct finished goods inventory, ending Unadjusted cost of goods sold Deduct: Overapplied overhead Adjusted cost of goods sold 75,000 $920,000 995,000 45,000 950,000 8,900 $941,100

Froya Fabrikker A/S Income Statement $ 1,950,000 941,100 1,008,900 $ Sales Cost of goods sold Gross margin Selling and administrative expenses: Advertising expense Utilities expense Salaries expense Depreciation expense Rent expense Net operating income $ $ | $ $ $ 151,000 3,700 185,000 17,400 16,800 $ $ 373,900 635,000