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 elated to selling and dministrative activities) d. Accrued salary and wage costs: Direct labor (1,125 hours) Indirect labor Selling and administrative salaries $275,000 $99,000 155,000 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). 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 ?

Solution

Calculation of Manufacturing overhead Incurred :-

Manufacturing Overhead Applied :-

Predetermind Overhead Rate = $336000 / 1050 direct labor hour = $320 per direct labor hour

Manufacturing Overhead Applied = 1125 H * $320 = $360000

Manufactuting Overhead overapplied = $360000 - $356000 = $4000

Income Statement :-

Particulars	Amount($)
Utility Bills ($68000*85%)	57800
Indirect Labor	99000
Maintenance Costs	63000
Depreciation ($81000*70%)	56700
Rent ($106000*75%)	79500
Total Manufacturing Overhead incurred	356000