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 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:
Direct labor (1,100 hours) | $ | 305,000 |
Indirect labor | $ | 105,000 |
Selling and administrative salaries | $ |
185,000 |
The balances in the inventory accounts at the beginning of the year were:
Raw Materials | $ | 45,000 |
Work in Process | $ | 36,000 |
Finished Goods | $ | 75,000 |
Required:
1. Prepare journal entries to record the preceding transactions.
2. Post your entries to T-accounts. (Don’t forget to enter the beginning inventory balances above.)
3. Prepare a schedule of cost of goods manufactured.
4A. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.
4B. Prepare a schedule of cost of goods sold.
5. Prepare an income statement for the year.
1) Predetermined overhead rate= Estimated overhead rate/Estimated direct labor hours
= $380000/1000= $380
Manufacturing overhead applied= $380*1100= $418000
Transactions | Accounts titles and explanation | Debit | Credit |
1 | Raw materials inventory | $275000 | |
Accounts payable | $275000 | ||
(To record materials purchased on account) | |||
2 | Work in process inventory | $260000 | |
Raw materials inventory | $260000 | ||
(To record direct materials used) | |||
3 | Manufacturing overhead (74000*95%) | $70300 | |
Utilities expense (74000-70300) | $3700 | ||
Accounts payable | $74000 | ||
(To record utilities bill incurred) | |||
4 | Work in process inventory | $305000 | |
Manufacturing overhead | $105000 | ||
Salaries expense | $185000 | ||
Salaries and wages payable | $595000 | ||
(To record accrued salary and wages costs) | |||
5 | Manufacturing overhead | $69000 | |
Accounts payable | $69000 | ||
(To record maintenance costs incurred on account) | |||
6 | Advertising expense | $151000 | |
Accounts payable | $151000 | ||
(To record advertising costs incurred on account) | |||
7 | Manufacturing overhead (87000*80%) | $69600 | |
Depreciation expense (87000*20%) | $17400 | ||
Accumulated depreciation | $87000 | ||
(To record depreciation expenses) | |||
8 | Manufacturing overhead (112000*85%) | $95200 | |
Rent expense (112000-85200) | $16800 | ||
Accounts payable | $112000 | ||
(To record rental cost incurred on account) | |||
9 | Work in process inventory | $418000 | |
Manufacturing overhead | $418000 | ||
(To record manufacturing overhead cost applied) | |||
10 | Finished goods inventory | $920000 | |
Work in process inventory | $920000 | ||
(To record cost of goods manufactured) | |||
11 | Accounts receivable | $1950000 | |
Sales revenue | $1950000 | ||
(To record sales on account) | |||
Cost of goods sold | $950000 | ||
Finished goods inventory | $950000 | ||
(To record cost of goods sold) |
2)
Raw Materials Inventory | Work-in-process Inventory | |||||||
Beg. bal. | $45000 | 2 | 260000 | Beg. bal. | $36000 | 10 | 920000 | |
1 | 275000 | 2 | 260000 | |||||
4 | 305000 | |||||||
9 | 418000 | |||||||
End. bal. | $60000 | End. bal. | $99000 | |||||
Finished Goods Inventory | Manufacturing Overhead | |||||||
Beg. bal. | $75000 | 11 | 950000 | 3 | 70300 | 9 | 418000 | |
10 | 920000 | 4 | 105000 | |||||
5 | 69000 | |||||||
7 | 69600 | |||||||
8 | 95200 | |||||||
End. bal. | $45000 | End. bal. | $8900 | |||||
Accounts payable | Cost of Goods Sold | |||||||
1 | $275000 | 11 | 950000 | |||||
3 | 74000 | |||||||
5 | 69000 | |||||||
6 | 151000 | |||||||
8 | 112000 | |||||||
End. bal. | $681000 | End. bal. | $950000 | |||||
Utilities expense | Salaries expense | |||||||
3 | 3700 | 4 | 185000 | |||||
End. bal. | $3700 | End. bal. | $185000 | |||||
Salaries and wages payable | Advertising expense | |||||||
4 | 595000 | 6 | 151000 | |||||
End. bal. | $595000 | End. bal. | $151000 | |||||
Depreciation expense | Accumulated depreciation | |||||||
7 | 17400 | 7 | 87000 | |||||
End. bal. | $17400 | End. bal. | $87000 | |||||
Rent expense | Accounts receivable | |||||||
8 | 16800 | 11 | 1950000 | |||||
End. bal. | $16800 | End. bal. | $1950000 | |||||
Sales revenue | ||||||||
11 | 1950000 | |||||||
End. bal. | $1950000 | |||||||
3)
Froya Fabrikker A/S | ||
Schedule of Cost of Goods Manufactured | ||
Direct materials: | ||
Beginning raw materials inventory | $45000 | |
Add: Purchases of raw materials | 275000 | |
Raw materials available for use | 320000 | |
Less: Ending raw materials inventory | (60000) | |
Raw materials used in production | 260000 | |
Direct labor | 305000 | |
Manufacturing overhead applied | 418000 | |
Total manufacturing cost | 983000 | |
Add: Work in process inventory | 36000 | |
1019000 | ||
Less: Ending work in process inventory | (99000) | |
Cost of goods manufactured | $920000 | |
4-A) Actual manufacturing overhead= $70300+105000+69000+69600+95200= $409100
Overapplied or underapplied= Manufacturing overhead applied-Actual manufacturing overhead
= $418000-409100= 8900 overapplied
Date | Accounts titles and explanation | Debit | Credit |
1 | Manufacturing overhead | $8900 | |
Cost of goods sold | $8900 | ||
(To record overapplied overhead) | |||
4-B)
Froya Fabrikker A/S | |
Schedule of Cost of Goods Sold | |
Beginning finished goods inventory | $75000 |
Add: Cost of goods manufactured | 920000 |
Cost of goods available for sale | 995000 |
Less: Ending finished goods inventory | (45000) |
Unadjusted cost of goods sold | 950000 |
Less: Overapplied overhead | (8900) |
Adjusted cost of goods sold | $941100 |
5)
Froya Fabrikker A/S | ||
Income Statement | ||
Sales | $1950000 | |
Less: Cost of goods sold | (950000) | |
Gross profit | 1000000 | |
Selling and administrative expenses: | ||
Utilities expense | 3700 | |
Salaries expense | 185000 | |
Advertising expense | 151000 | |
Depreciation expense | 17400 | |
Rent expense | 16800 | |
Total selling and administrative expenses | (373900) | |
Net operating income | $626100 | |
Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for...
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 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 $350,000 of manufacturing overhead for an estimated allocation base of 1,000 direct labor-hours. The following transactions took place during the year: Raw materials purchased on account,...
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 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 $357,000 of manufacturing overhead for an estimated allocation base of 1,020 direct labor-hours. The following transactions took place during the year: Raw materials purchased on account,...
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 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 $350,000 of manufacturing overhead for an estimated allocation base of 1,000 direct labor-hours. The following transactions took place during the year: Raw materials purchased on account,...
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 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 $395,600 of manufacturing overhead for an estimated allocation base of 920 direct labor-hours. The following transactions took place during the year a. Raw materials purchased...
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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 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 $388,800 of manufacturing overhead for an estimated allocation base of 810 direct labor-hours. The following transactions took place during the year. a. Raw materials purchased on...
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 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 $372,000 of manufacturing overhead for an estimated allocation base of 1,200 direct labor-hours. The following transactions took place during the year: Raw materials purchased on account,...
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 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: Raw materials purchased on account,...
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 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 $372,000 of manufacturing overhead for an estimated allocation base of 1,200 direct labor-hours. The following transactions took place during the year: Raw materials purchased on account,...
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 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 $374,000 of manufacturing overhead for an estimated allocation base of 1,100 direct labor-hours. The following transactions took place during the year: Raw materials purchased on account,...