QUESTION 1

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:

a. Raw materials purchased on account, $290,000.

b. Raw materials used in production (all direct materials), $275,000.

c. Utility bills incurred on account, $77,000(90% related to factory operations, and the remainder related to selling and administrative activities).

d. Accrued salary and wage costs:

Direct labor (970 hours) $320,000

Indirect labor $108,000

Selling and administrative salaries $200,000

e. Maintenance costs incurred on account in the factory, $72,000

f. Advertising costs incurred on account, $154,000.

g. Depreciation was recorded for the year, $90,000(75% related to factory equipment, and the remainder related to selling and administrative equipment).

h. Rental cost incurred on account, $115,000(80% 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, $950,000.

k. Sales for the year (all on account) totaled $2,100,000. These goods cost $980,000according 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. (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.

QUESTION 3

Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct materialsused in production(noton the basis of raw materials purchased). Its predetermined overhead rate was based on a cost formula that estimated $120,900 of manufacturing overhead for an estimated allocation base of $93,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials $132,000

Direct labor cost $89,000

Manufacturing overhead costs:

Indirect labor $114,200

Property taxes $8,100

Depreciation of equipment $20,000

Maintenance $11,000

Insurance $8,300

Rent, building $30,000

Beginning Ending

Raw Materials $23,000 $11,000

Work in Process $49,000 $40,000

Finished Goods $72,000 $62,000

Required:

1. Compute the predetermined overhead rate for the year.

2. Compute the amount of under applied or over applied overhead for the year.

3. Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

4. Compute the unadjusted cost of goods sold for the year. Do not include any under applied or over applied overhead in your answer.

5. Assume that the $40,000 ending balance in Work in Process includes $8,400 of direct materials. Given this assumption, supply the information missing below: