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 $370,500 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, $270,000.

2. Raw materials used in production (all direct materials), $255,000.

3. Utility bills incurred on account, $73,000 (90% related to factory operations, and the remainder related to selling and administrative activities).

4. Accrued salary and wage costs:

 

Direct labor (1,030 hours)	$	300,000
Indirect labor	$	104,000
Selling and administrative salaries	$	180,000

 

1. Maintenance costs incurred on account in the factory, $68,000

2. Advertising costs incurred on account, $150,000.

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, $910,000.

7. Sales for the year (all on account) totaled $1,900,000. These goods cost $940,000 according to their job cost sheets.

 

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

 

Raw Materials	$	44,000
Work in Process	$	35,000
Finished Goods	$	74,000

 

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.