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
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 $351,000 of manufacturing overhead for an estimated allocation base of 900 direct labor-hours. The following transactions took place during the year:
Raw materials purchased on account, $265,000. Raw materials used in production (all direct materials), $250,000. Utility bills incurred on account, $72,000 (85% related to factory operations, and the remainder related to selling and administrative activities). Accrued salary and wage costs:
Direct labor (980 hours) $ 295,000
Indirect labor $ 103,000
Selling and administrative salaries $ 175,000
Maintenance costs incurred on account in the factory, $67,000
Advertising costs incurred on account, $149,000.
Depreciation was recorded for the year, $85,000 (70% related to factory equipment, and the remainder related to selling and administrative equipment).
Rental cost incurred on account, $110,000 (75% related to factory facilities, and the remainder related to selling and administrative facilities).
Manufacturing overhead cost was applied to jobs, $?.
Cost of goods manufactured for the year, $900,000. Sales for the year (all on account) totaled $1,850,000.
These goods cost $930,000 according to their job cost sheets.
The balances in the inventory accounts at the beginning of the year were:
Raw Materials $ 43,000 Work in Process $ 34,000 Finished Goods $ 73,000
Required:
1. Prepare journal entries to record the preceding transactions.
2. Post your entries to T-accounts. (Dont 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.
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