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 $395,600 of manufacturing overhead for an estimated allocation base of 920 direct labor-hours. The following transactions took place during the year:

1. Raw materials purchased on account, $290,000.
2. Raw materials used in production (all direct materials), $275,000.
3. Utility bills incurred on account, $77,000 (90% related to factory operations, and the remainder related to selling and administrative activities).
4. Accrued salary and wage costs:

Direct labor (970 hours)	$ 320,000
Indirect labor	$ 108,000
Selling and administrative salaries	$ 200,000

1. Maintenance costs incurred on account in the factory, $72,000
2. Advertising costs incurred on account, $154,000.
3. Depreciation was recorded for the year, $90,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).
4. Rental cost incurred on account, $115,000 (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, $950,000.
7. Sales for the year (all on account) totaled $2,100,000. These goods cost $980,000 according to their job cost sheets.

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

Raw Materials	$ 48,000
Work in Process	$ 39,000
Finished Goods	$ 78,000

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.

Prepare a schedule of cost of goods manufactured.

Froya Fabrikker A/S
Schedule of Cost of Goods Manufactured
Direct materials:
Total raw materials available
Direct materials used in production
Total manufacturing costs added to production
Total manufacturing costs to account for
Cost of goods manufactured

• Record the entry to close any balance in the manufacturing overhead account to cost of goods sold.

Note: Enter debits before credits.

Transaction	General Journal	Debit	Credit
1

Prepare a schedule of cost of goods sold.

Froya Fabrikker A/S
Schedule of Cost of Goods Sold

Prepare an income statement for the year.

Froya Fabrikker A/S
Income Statement
For the Year Ended
Selling and administrative expenses: