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 $388,800 of manufacturing overhead for an estimated allocation base of 810 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $295,000. b. Raw materials used in production (all direct materials). $280,000. c. Utility bills incurred on account, $78,000 (95% related to factory operations, and the remainder related to selling and administrative activities). d. Accrued salary and wage costs: Direct labor (890 hours) Indirect labor Selling and administrative salaries $ 325,000 $ 109,000 $ 205,000 e. Maintenance costs incurred on account in the factory, $73,000 f. Advertising costs incurred on account, $155,000. g. Depreciation was recorded for the year, $91,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, $105,000 (85% 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, $960,000. k. Sales for the year (all on account) totaled $2,150,000. These goods cost $990,000 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 $ 49,000 $ 40,000 $ 79,000 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. Prepare a schedule of cost of goods manufactured. Froya Fabrikker A/S Schedule of Cost of Goods Manufactured Direct materials: $ Beginning raw materials inventory Add: Purchases of raw materials 49,000 295,000 344,000 64,000 $ 280,000 Total raw materials available Less: Ending raw materials inventory Materials used in production Dir labor Manufacturing overhead applied to work in process Total manufacturing costs Add: Beginning work in process inventory 325,000 427,200 40,000 40,000 112,200 Less: Ending work in process inventory Cost of goods manufactured Prepare an income statement for the year. Froya Fabrikker A/S Income Statement For the Year Ended Sales Cost of goods sold Gross margin Selling and administrative expenses: 0 Utilities expense Advertising expense Salaries expense Depreciation expense Rent expense 0 Net operating income $ O 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: Overapplied overhead Adjusted cost of goods sold
