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 $380,000 of manufacturing overhead for an estimated allocation base of 1,000 direct labor-hours. The following transactions took place during the year: a. Raw materials purchased on account, $275,000. b. Raw materials used in production (all direct materials), $260,000. C. Utility bills incurred on account, $74,000(95% related to factory operations, and the remainder related to selling and administrative d. Accrued salary and wage costs: Direct labor (1,100 hours) Indirect labor $ 305,000 $ 105,000 $ 185,000 Selling and administrative salaries e. Maintenance costs incurred on account in the factory, $69,000 f. Advertising costs incurred on account, $151,000. g. Depreciation was recorded for the year, $87,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment). h. Rental cost incurred on account, S112.000 (85% related to factory facilities, and the remainder related to selling and administrative facilities). i. Manufacturing overhead cost was applied to jobs, $L j. Cost of goods manufactured for the year, $920,000 k. Sales for the year (all on account) totaled $1,950,000. These goods cost $950,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materials Nork in Process Finished Goods $45,000 $36,000 $75,000 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 Complete this question by entering your answers in the tabs below.

Solution

ans 1 Transa Accounst Title Dr Cr a Raw Material Inventory $275,000 Accounst Payable $275,000 b Work in Process Inventory $260,000 Raw material Inventory $260,000 c Manufacturing Overhead 70300 Selling & adminsitrative expenses 3700 Cash $74,000 d Work in Process Inventory 305000 Manufacturing Overhead 105000 Selling & adminsitrative expenses 185000 Salaries & wages payable 595000 e Manufacturing Overhead $69,000 Cash $69,000 f Selling & adminsitrative expenses 151000 Cash 151000 g Manufacturing Overhead (87000*80%) 69600 Selling & adminsitrative expenses 17400 Accumulated Depreciation-equipment $87,000 h Manufacturing Overhead (112000*85%) 95200 Selling & adminsitrative expenses 16800 Accounts Payable $112,000 i Work in Process Inventory 418000 Manufacturing Overhead 418000 (380000/1000=$380 per hr) (1100*380) J Finished Goods Inventory 920000 Work in Process Inventory 920000 ( to transfer WIP to COGM) K Accounts Receivable 1950000 Sales 1950000 Cost of Good sold 950000 Finished Goods Inventory 950000 ans2 Raw Material Inventory Opening Balance 45000 b) Work In Process $260,000 a)Accounts payable $275,000 EndinG balance $60,000 Work In process Opening Balance 36000 j)Finsihed Goods Inv $920,000 b) Raw material $260,000 d) Wages payable $305,000 i) ManufacturingOverhead $418,000 Ending balance 99000 Cost of good sold Finished Goods Inventory 950000 Finsihed Goods Opening Balance 75000 k)Cost of good sold $950,000 j) Work In process $920,000 Ending balance $45,000 Manufacturing overhead c) 70300 d) 105000 i) $418,000 e) $69,000 g) $69,600 h) 95200 end bal $8,900 ans 3 Statement of Cost of Goods manufactured Direct Material Beginning, Direct Material $45,000 Add: Direct material purchased $275,000 Total Direct Material Available $320,000 Less: ending, Direct material $60,000 Direct Material used $260,000 Direct Labor $305,000 Manufacturing overhead $418,000 Total manufacturing cost $983,000 Beginning , work in process 36000 Ending, Work in process 99000 Cost of Goods Manufactured $920,000 ans 4a Overapplied Dr Cr Manufacturing Overhead $8,900 Cost of good sold $8,900 ans 4b Cost of Good sold Beginning Finished Goods Inventory 75000 Add: Cost of Goods manufactured $920,000 995000 Less: ending FG Inventory $45,000 Unadjusted COGS $950,000 Less: Manufacturing overhead $8,900 Adjusted COGS $941,100 ans 5 Income statement Sales 1950000 Less:Cost of goofd sold $941,100 Gross profit $1,008,900 LesS: Selling & administrative expenses 373900 Net Income $635,000