Question

roya 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 $342,000 of manufacturing overhead for an estimated allocation base of 950 direct labor-hours. The following transactions took place during the year:

 

1. Raw materials purchased on account, $210,000.

2. Raw materials used in production (all direct materials), $195,000.

3. Utility bills incurred on account, $61,000 (95% related to factory operations, and the remainder related to selling and administrative activities).

4. Accrued salary and wage costs:

Direct labor (1,025 hours)$240,000

Indirect labor $92,000

Selling and administrative salaries $120,000

1. Maintenance costs incurred on account in the factory, $56,000

2. Advertising costs incurred on account, $138,000.

3. Depreciation was recorded for the year, $86,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).

4. Rental cost incurred on account, $111,000 (80% related to factory facilities, and the remainder related to selling and administrative facilities).

5. Manufacturing overhead cost was applied to jobs, $ ? .

6. Cost of goods manufactured for the year, $790,000.

7. Sales for the year (all on account) totaled $1,300,000. These goods cost $820,000 according to their job cost sheets.

 

The balances in the inventory accounts at the beginning of the year were:

 

Raw Materials	$	32,000
Work in Process	$	23,000
Finished Goods	$	62,000

 

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.

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