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 $351,500 of manufacturing overhead for an estimated allocation base of 950 direct labor-hours. The following transactions took place during the year:
- Raw materials purchased on account, $215,000.
- Raw materials used in production (all direct materials), $200,000.
- Utility bills incurred on account, $62,000 (85% related to factory operations, and the remainder related to selling and administrative activities).
- Accrued salary and wage costs:
Direct labor (1,025 hours) | $ 245,000 |
---|---|
Indirect labor | $ 93,000 |
Selling and administrative salaries | $ 125,000 |
- Maintenance costs incurred on account in the factory, $57,000
- Advertising costs incurred on account, $139,000.
- Depreciation was recorded for the year, $87,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment).
- Rental cost incurred on account, $112,000 (85% 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, $800,000.
- Sales for the year (all on account) totaled $1,350,000. These goods cost $830,000 according to their job cost sheets.
The balances in the inventory accounts at the beginning of the year were:
Raw Materials | $ 33,000 |
---|---|
Work in Process | $ 24,000 |
Finished Goods | $ 63,000 |
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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