Froya Fabrikker AS of Bergen Norway is a small company that

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 $336,000 of manufacturing overhead for an estimated allocation base of 1,050 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $245,000. b. Raw materials used in production (all direct materials), $230,000. c. Utility bills incurred on account, $68,000 (85% related to factory operations, and the remainder related to selling and administrative activities). d. Accrued salary and wage costs: Direct labor (1,125 hours) Indirect labor s 275,000 $ 99,000 155,000 Selling and administrative salaries e. Maintenance costs incurred on account in the factory, $63,000 f. Advertising costs incurred on account, $145,000. g. Depreciation was recorded for the year, $81,000 (70% related to factory equipment, and the remainder related to selling and administrative equipment) h. Rental cost incurred on account, $106,000 (75% 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, $860,000. k. Sales for the year (all on account) totaled $1,650,000. These goods cost $890,000 according to their job cost sheets.

Solution

overhead rate = 336000/1050 320 per DLH\'s Applied overhead (1,125 hrs *320)= 360000 Actual overhead utility bills (68000*85%)= 57800 indirect labor 99,000 Maintenance cost 63,000 depreciation (81000*70%) 56700 Rental cost (106000*75%) 79500 total actual overhead 356,000 overhead over applied 4,000 journal entry General journal debit Credit Manufacturing overhead 4,000 cost of goods sold 4,000 (being cost of goods sold reduced by over applied overhead )