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). L. 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

1. Journal entries:

Transaction General Journal Debit $ 280,000 Credit $ a. Raw Materials Inventory Accounts Payable 280,000 b. 265,000 Work in Process Inventory Raw Materials Inventory 265,000 C. Manufacturing Overhead Utilities Expense Accounts Payable 60,000 15,000 75,000 d. Work in Process Inventory Manufacturing Overhead Salaries Expense Salaries and Wages Payable 310,000 106,000 190,000 606,000 e. 70,000 Manufacturing Overhead Accounts Payable 70,000 f. 152,000 Advertising Expense Accounts Payable 152,000 g. Manufacturing Overhead Depreciation Expense Accumulated Depreciation:Equipment 74,800 13,200 88,000 h. Manufacturing Overhead Rent Expense Accounts Payable 101,700 11,300 113,000 i. 418,000 Work in Process Inventory Manufacturing Overhead 418,000 lj. 930,000 Finished Goods Inventory Work in Process Inventory 930,000 k. 2,000,000 Accounts Receivable Sales 2,000,000 960,000 Cost of Goods Sold Finished Goods Inventory 960,000

●Utilities bills related to factory overhead = 80% of $75,000 = $60,000

Related to selling and administrative activities = $75,000 - $60,000 = $15,000

●Accumulated depreciation related to factory equipment = 85% of $88,000 = $74,800
Accumulated depreciation related to selling and administrative equipment = $88,000 - $74,800 = $13,200

●Rental costs related to factory overhead = 90% of $113,000 = $101,700
Related to selling and administrative activities = $113,000 - $101,700 = $11,300

●Manufacturing overhead costs applied to jobs = Predetermined overhead rate × Direct labor hours

Predetermined overhead rate = Estimated manufacturing overhead/ Estimated direct labor hours = $399,000 / 1,050 = $380

Direct labor hours = 1,100 hours

Manufacturing overhead costs applied to jobs = $380 × 1,100 = $418,000

2.

Raw Materials Inventory Beg. bal. $46,000 b) 265,000 a) 280,000 Work-in-process Inventory Beg. bal. $37,0001) 930,000 b) 265,000 d) 310,000 i) 418,000 End. bal. $61,000 End. bal. $100,000 Finished Goods Inventory Beg. bal. $76,000 K) 960,000 1) 930,000 C d) e) g) b) Manufacturing Overhead 60,0001) 418,000 106,000 70,000 74,800 101,700 End. bal. $46,000 End. bal. $5,500 Cost of Goods Sold 960,000 k) Accounts payable a) c) e) f) h) 이 $280,000 75,000 70,000 152,000 113,000 End. bal. $690,000 End. bal. $960,000 Utilities expense Salaries expense 190,000 c) 15,000 d) End. bal. $15,000 End. bal. $190,000 Salaries and wages payable 606,000f) Advertising expense 152,000 End. bal. $606,000 End. bal. $152,000 Depreciation expense 13,200 Accumulated depreciation g) 88,000 g) End. bal. $13,200 End, bal. $88,000 Rent expense 11,300 Accounts receivable 2,000,000 h) k) End. bal. $11,300 End. bal. $2,000,000 Sales revenue k) 2,000,000 End. bal. $2,000,000

3.

Froya Fabrikker A/S Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory $46,000 Add: Purchases of raw materials 280,000 Raw materials available for use $326,000 Less: Ending raw materials inventory -61,000 Raw materials used in production Direct labor Manufacturing overhead applied Total manufacturing cost Add: Opening Work in process inventory 265,000 310,000 418,000 993,000 37,000 1,030,000 -100,000 930,000 Less: Ending work in process inventory Cost of goods manufactured

4.A

Credit Debit 5,500 Transaction General Journal 1 Manufacturing overhead Cost of goods sold (To record overapplied overhead) 5,500

●Manufacturing overhead underapplied or overapplied = Actual overhead - Applied overhead

Actual overhead = $60,000 + $106,000 + $70,000 + $74,800 + $101,700 = $412,500
Applied overhead = $418,000

Manufacturing overhead overapplied = $418,000 - $412,500 = $5,500
If applied overhead exceeds actual overhead, the overhead is overapplied.

4-B) Froya Fabrikker A/S Schedule of Cost of Goods Sold Beginning finished goods inventory $76,000 Add: Cost of goods manufactured 930,000 Cost of goods available for sale $1,006,000 Less: Ending finished goods inventory -46,000 Unadjusted cost of goods sold $960,000 Less: Overapplied overhead -5,500 | Adjusted cost of goods sold $954,500 5) $2,000,000 -960,000 $1,040,000 Froya Fabrikker A/S Income Statement Sales Less: Cost of goods sold Gross profit Selling and administrative expenses: Utilities expense Salaries expense Advertising expense Depreciation expense Rent expense Total selling and administrative expenses Net operating income 15,000 190,000 152,000 13,200 11,300 -381,500 $658,500