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 $350,000 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, $250,000. b. Raw materials used in production (all direct materials), $235,000. c. Utility bills incurred on account, $69,000 (90% related to factory operations, and the remainder related to selling and administrative activities). d. Accrued salary and wage costs: Direct labor (1,075 hours) Indirect labor Selling and administrative salaries $ 280,000 $ 100,000 $ 160,000 e. Maintenance costs incurred on account in the factory, $64,000 f. Advertising costs incurred on account, $146,000. g. Depreciation was recorded for the year, $82,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $107,000 (80% related to factory facilities, 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, $870,000. k. Sales for the year (all on account) totaled $1,700,000. These goods cost $900,000 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 $ 40,000 $ 31,000 $ 70,000

Answer 1

62 Sales Beg. Bal Accounts Receivable Beg. Bal K 1,700,000 End. Bal 1,700,000 1,700,000 K 1,700,000 End. Bal Beg. Bal a End. Bal Raw Material 40,000 235,000 b 250,000 55,000 Beg. Bal K End. Bal Cost of Goods Sold 0 900,000 900,000 Manufacturing Overhead 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 Beg. Bal 0 Beg. Bal b Work in Pocess 31,000 870,000 j 235,000 280,000 376,250 с d d i e End. Bal 52,250 g h End. Bal 62,100 376,250 i 100,000 64,000 61,500 85,600 3,050 (Overapplied) Advertising expense 0 146,000 146,000 Beg. Bal j End. Bal Finished Goods 70,000 900,000 k 870,000 40,000 Beg. Bal f End. Bal

85 Accumulated Dep. Utilities Expense 86 Beg. Bal Beg. Bal 87 с 6,900 82,000 g 82,000 88 End. Bal End. Bal 6,900 89 90 Accounts Payable Salaries Expense 91 Beg. Bal Beg. Bal d 92 160,000 93 94 250,000 a 69,000 C 64,000 e 146,000 f 107,000 h 160,000 Depreciation Expense 95 96 Beg. Bal 97 98 20,500 20,500 End. Bal 636,000 End. Bal 99 Salaries & Wages Payable Rent Expense 100 101 Beg. Bal Beg. Bal h 540,000 d 21,400 102 103 104 End. Bal 540,000 End. Bal 21,400

31,000 106 3. Prepare a schedule of cost of goods manufactured. 107 108 Froya Fabrikker A/S 109 Schedule of Cost of Goods Manufactured 110 Work in process, beginning 111 Direct material: 112 Raw-material inventory, January 1. 40,000 113 Add: Purchases of raw material 250,000 114 Raw material available for use 290,000 115 Deduct: Raw-material inventory, December 31 55,000 116 Raw material used 117 Direct labor 118 Manufacturing Overheads applied 119 Total manufacturing costs added to production 120 Total manufacturing costs to account for 121 Less: Work in process, ending 122 Cost of Goods Manufactured 123 124 4A Prepare Journal entry to close cost of Goods Sold 125 126 Manufacturing Overhead 3,050 127 Cost of Goods Sold 128 In close most of Goods Sold 235,000 280,000 376,250 891,250 922,250 52,250 870,000 3,050

4-b 130 131 132 133 134 135 136 137 138 Froya Fabrikker A/S SCHEDULE OF COST OF GOODS SOLD Beginning finished goods inventory Add Cost of goods manufactured Cost of goods available for sale Less Ending finished goods inventory Unadjusted Cost of Goods Sold Less; Overerapplied Overheads Cost of goods sold 70,000 870,000 940,000 40,000 900,000 3,050 896,950 139

140 141 142 143 144 1,700,000 896,950 803,050 145 146 Froya Fabrikker A/S INCOME STATEMENT For the year ended Sales Cost of Goods Sold Gross Margin Selling & Adminstrative Expenses Advetising Expense Utilities Expese Depreciation Expense Rent Expense Salaries expense Total Selling & Adminstrative Expenses Net Operating Income 147 148 149 146,000 6,900 20,500 21,400 160,000 150 151 152 354,800 448,250 153 154