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 $360,000 of manufacturing overhead for an estimated allocation base of 900 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $200,000 b. Raw materials used in production (all direct materials) $185,000. c. Utility bills incurred on account, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities) d. Accrued salary and wage costs: Direct labor (975 hours) Indirect labor Selling and administrative salaries $ 230,000 $ 90,000 $ 110,000 e. Maintenance costs incurred on account in the factory, $54,000. f. Advertising costs incurred on account, $136,000. g. Depreciation was recorded for the year. $95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $120,000 (85% 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, $770,000 k. Sales for the year (all on account) totaled $1,200,000. These goods cost $800,000 according to their job cost sheets.

Answer 1

1	Predetermined overhead rate=Total estimated overhead costs/Total estimated direct-labor hours=360000/900=$ 400 per direct labor hour
	Sl No.	Account/Explanation					Debit	Credit
	a	Raw materials					200000
		Accounts payable						200000
		(Purchased materials on account)
	b	Work in process					185000
		Raw materials						185000
		(Used direct materials)
	c	Manufacturing overhead			(70000*90%)		63000
		Utilities expense			(70000*10%)		7000
		Accounts payable						70000
		(Utilty bills incurred on account)
	d	Work in process					230000
		Manufacturing overhead					90000
		Salaries expense					110000
		Wages payable						430000
		(Wages incurred)
	e	Manufacturing overhead					54000
		Accounts payable						54000
		(Maintenance cost incurred)
	f	Advertising expense					136000
		Accounts payable						136000
		(Advertising cost incurred)
	g	Manufacturing overhead			(95000*80%)		76000
		Depreciation expense			(95000*20%)		19000
		Accumulated depreciation						95000
		(Depreciation recorded)
	h	Manufacturing overhead			(120000*85%)		102000
		Rent expense			(120000*15%)		18000
		Accounts payable						120000
		(Rental cost incurred)
	i	Work in process inventory			(975*400)		390000
		Manufacturing overhead						390000
		(Allocated manufacturing overhead)
	j	Finished goods					770000
		Work in process						770000
		(Cost completed during the year)
	k	Accounts receivable					1200000
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