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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

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.

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