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 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 $399,000 of manufacturing overhead for an estimated allocation base of 1,050 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $280,000. b. Raw materials used in production (all direct materials) $265,000. c. Utility bills incurred on account, $75,000 (80% 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 $ 310,000 $ 106,000 $ 190,000 e. Maintenance costs incurred on account in the factory, $70,000 f. Advertising costs incurred on account, $152,000. g. Depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $113,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities) 1. Manufacturing overhead cost was applied to jobs, $ ? j. Cost of goods manufactured for the year, $930,000. k. Sales for the year (all on account) totaled $2,000,000. These goods cost $960,000 according to their job cost sheets.

Answer 1

Requirement 1 Journal S.No. Particulars 1 Raw Materials Accounts Payable (Raw material purchased) (in $) Debit 280,000 (in $) Credit 280,000 2 265,000 Work in Process Raw Materials (Direct material used in process) 265,000 3 60,000 15,000 Manufacturing Overhead (75000*80%) Selling and administrative expenses (75000*20%) Utilities Payable (To record utilities expenses) 75,000 4 Work in Process Manufacturing Overhead Selling and administrative expenses Wages Payable (Factory wages payable) 310,000 106,000 190,000 606,000 5 70,000 Manufacturing Overhead Accounts Payable (To record maintenance costs of factory) 70,000 6 152,000 Selling and administrative expenses Accounts Payable (To record advertising expenses) 152,000 7 74,800 13,200 Manufacturing Overhead (88000*85%) Selling and administrative expenses (88000*15%) Accumulated Depreciation Equipment (To record utilities expenses) 88,000

8 101,700 11,300 Manufacturing Overhead (113000*90%) Selling and administrative expenses (113000*10%) Rent Payable (To record rental expenses) 113,000 9 418,000 Work in Process (1100*380) Manufacturing Overhead (Manufacturing OH applied) 418,000 10 930,000 Finished Goods Work in Process (Transferred goods from WIP to finished goods) 930,000 11a 2,000,000 Accounts Receivable Sales (To record sales made on account) 2,000,000 11b 960,000 Cost of goods sold Finished Goods (To record cost of goods sold) 960,000 Note- Computation of Pre-Determined Overhead rate $ Estimated Manufacturing Overhead cost Estimated Direct labor hours Pre-determined manufacturing Overhead rate (399000/1050) 399,000 1050 380 $

Requirement 2 Beg.Bal. Purchases $ $ Raw Materials 46,000 $ 265,000 Direct Materials used 280,000 Beg.Bal. Direct Materials Direct Labor Applied Manufacturing OH End. Bal. Work-in-Process Inventory $ 37,000 $ 265,000 $ 930,000 Finished Goods $ 310,000 $ 418,000 $ 100,000 End. Bal. $ 61,000 Cost of Goods sold 960,000 Finished Goods $ Beg.Bal. Work-in-Process End. Bal. Finished Goods Inventory $ 76,000 $ 960,000 Cost of goods sold $ 930,000 $ 46,000 End. Bal. $ 960,000 Utilities Indirect Labor Factory Maintenance Factory Depreciation Factory Rent End. Bal. Manufacturing Overhead $ 60,000 $ 106,000 $ 418,000 Applied Manufacturing OH $ 70,000 $ 74,800 $ 101,700 $ 5,500 Utilities Salaries Advertising Depreciation Rent End. Bal. Selling and administrative expense $ 15,000 $ 190,000 $ 152,000 $ 13,200 $ 11,300 $ 381,500 Sales Revenue $ 2,000,000 Accounts Receivable Wages Payable $ 310,000 Direct Labor $ 106,000 Indirect labor $ 190,000 S&A salaries $ 606,000 End. Bal. End. Bal. $ 2,000,000

Requirement 3 Froya Fabrikker A/S Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory Raw material purchased Total raw materials available Ending raw materials inventory Materials used in production Direct Labor Manufacturing Overhead applied Total Manufacturing cost Beginning Work in process inventory Total WIP costs to account for Ending Work in process inventory Cost of goods manufactured $ $ $ $ $ $ $ $ $ $ $ $ 46,000 280,000 326,000 (61,000) 265,000 310,000 418,000 993,000 37,000 1,030,000 (100,000) 930,000 Requirement 4A Credit Debit 5,500 $ Transaction General Journal Manufacturing Overhead Cost of goods sold (To close overapplied overhead) $ 5,500 Requirement 4B Froya Fabrikker A/S Schedule of Cost of Goods Sold Cost of goods manufactured Beginning finished goods inventory Cost of goods available for sale Ending finished goods inventory Unadjusted Cost of goods sold Over-applied manufacturing overhead Adjusted Cost of goods sold $ $ $ $ $ $ $ 930,000 76,000 1,006,000 (46,000) 960,000 (5,500) 954,500

Requirement 5 Froya Fabrikker A/S Income Statement For the Year Ended $ $ $ 2,000,000 (954,500) 1,045,500 Sales Adjusted Cost of goods sold Gross Profit Selling and administrative expenses Advertising expense Utilities expense Salaries expense Depreciation expense Rent expense $ 152,000 15,000 190,000 13,200 11,300 Total selling and administrative expenses Operating Income $ $ 381,500 664,000