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 $357,000 of manufacturing overhead for an estimated allocation base of 1,020 direct labor-hours. The following transactions took place during the year:

1. Raw materials purchased on account, $260,000.
2. Raw materials used in production (all direct materials), $245,000.
3. Utility bills incurred on account, $71,000 (80% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (1,095 hours)	$	290,000
Indirect labor	$	102,000
Selling and administrative salaries	$	170,000

5. Maintenance costs incurred on account in the factory, $66,000
6. Advertising costs incurred on account, $148,000.
7. Depreciation was recorded for the year, $84,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).
8. Rental cost incurred on account, $109,000 (80% related to factory facilities, and the remainder related to selling and administrative facilities).
9. Manufacturing overhead cost was applied to jobs, $?.
10. Cost of goods manufactured for the year, $890,000.
11. Sales for the year (all on account) totaled $1,800,000. These goods cost $920,000 according to their job cost sheets.

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

Raw Materials	$	42,000
Work in Process	$	33,000
Finished Goods	$	72,000

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.) Determine the ending balances in the inventory accounts and in the Manufacturing Overhead account.

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.

Journal Entry Worksheet

• 1

  The raw materials were purchased for use in production, $260,000 on account.

• 2

  The raw materials used in production (all direct materials), $245,000.

• 3

  The utility bills were incurred, $71,000 (80% related to factory operations, and the remainder related to selling and administrative activities).

• 4

  The salary and wage costs incurred were $290,000 (Direct labor), $102,000 (Indirect labor), $170,000 (Selling and administrative salaries).

• 5

  The maintenance costs were incurred in the factory, $66,000.

• 6

  The advertising costs were incurred, $148,000.

• 7

  The depreciation was recorded for the year, $84,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).

• 8

  The entry for rental cost incurred on account, $109,000 (80% related to factory facilities, and the remainder related to selling and administrative facilities).

• 9

  The entry for manufacturing overhead cost applied to jobs.

• 10

  The cost of goods manufactured for the year, $890,000.

• 11

  The sales for the year (all on account) totaled $1,800,000.

• 12

  The goods cost $920,000 according to their job cost sheets.