Froya Fabrikker A/S of Bergen, Norway, is a small company thatmanufactures specialty heavy equipment for use in North Sea oilfields. The company uses a job-order costing system that appliesmanufacturing overhead cost to jobs on the basis of directlabor-hours. Its predetermined overhead rate was based on a costformula that estimated $329,000 of manufacturing overhead for anestimated allocation base of 940 direct labor-hours.
The following transactions took place during the year:
Raw materials purchased on account, $205,000.
Raw materials used in production (all direct materials),$190,000.
Utility bills incurred on account, $60,000 (90% related tofactory operations, and the remainder related to selling andadministrative activities).
Accrued salary and wage costs:
Direct labor (1,015 hours) $ 235,000
Indirect labor $ 91,000
Selling and administrative salaries $ 115,000
Maintenance costs incurred on account in the factory,$55,000
Advertising costs incurred on account, $137,000.
Depreciation was recorded for the year, $85,000 (70% related tofactory equipment, and the remainder related to selling andadministrative equipment).
Rental cost incurred on account, $110,000 (75% related tofactory facilities, and the remainder related to selling andadministrative facilities).
Manufacturing overhead cost was applied to jobs, $???
. Cost of goods manufactured for the year, $780,000.
Sales for the year (all on account) totaled $1,250,000. Thesegoods cost $810,000 according to their job cost sheets.
The balances in the inventory accounts at the beginning of theyear were:
Raw Materials $ 31,000
Work in Process $ 22,000
Finished Goods $ 61,000
Required: 1. Prepare journal entries to record the precedingtransactions.
2. Post your entries to T-accounts. (Don’t forget to enter thebeginning inventory balances above.)
3. Prepare a schedule of cost of goods manufactured.
4A. Prepare a journal entry to close any balance in theManufacturing Overhead account to Cost of Goods Sold.
4B. Prepare a schedule of cost of goods sold. 5. Prepare anincome statement for the year.
