Question

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 $360,000 of manufacturing overhead for an estimated allocation base of 900 direct labor-hours. The following transactions took place during the year:

Raw materials purchased on account, $200,000.

Raw materials used in production (all direct materials), $185,000.

Utility bills incurred on account, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities).

Accrued salary and wage costs:

Direct labor (975 hours)	$	230,000
Indirect labor	$	90,000
Selling and administrative salaries	$	110,000

Maintenance costs incurred on account in the factory, $54,000.

Advertising costs incurred on account, $136,000.

Depreciation was recorded for the year, $95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment).

Rental cost incurred on account, $120,000 (85% related to factory facilities, and the remainder related to selling and administrative facilities).

Manufacturing overhead cost was applied to jobs, $???.

Cost of goods manufactured for the year, $770,000.

Sales for the year (all on account) totaled $1,200,000. These goods cost $800,000 according to their job cost sheets.

The balances in the inventory accounts at the beginning of the year were:

Raw Materials	$	30,000
Work in Process	$	21,000
Finished Goods	$	60,000

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.

Post your entries to T-accounts. (Don’t forget to enter the beginning inventory balances above.)

Accounts Receivable					Sales
Beg. Bal.	200,000	$200,000			Beg. Bal.
a.	$200,000	$185,000	b.
a.	$200,000	$200,000	b.
End. Bal.	15,000				End. Bal.
Raw Materials					Cost of Goods Sold
Beg. Bal.					Beg. Bal.
a.	200,000
		200,000
					End. Bal.
End. Bal.
Work in Process					Manufacturing Overhead
Beg. Bal.					Beg. Bal.
End. Bal.
					End. Bal.
Finished Goods					Advertising Expense
Beg. Bal.					Beg. Bal.
					End. Bal.
End. Bal.
Accumulated Depreciation					Utilities Expense
Beg. Bal.					Beg. Bal.
End. Bal.					End. Bal.
Accounts Payable					Salaries Expense
Beg. Bal.					Beg. Bal.
					End. Bal.
End. Bal.
Depreciation Expense					Salaries & Wages Payable
Beg. Bal.					Beg. Bal.
End. Bal.					End. Bal.
Rent Expense
Beg. Bal.
End. Bal.

Prepare a schedule of cost of goods manufactured.

Froya Fabrikker A/S
Schedule of Cost of Goods Manufactured
Direct materials:
Total raw materials available
Materials used in production
Total manufacturing cost
Cost of goods manufactured

Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

Record the entry to close any balance in the manufacturing overhead account to cost of goods sold.

Note: Enter debits before credits.

Transaction	General Journal	Debit	Credit
1

Answer 1

	Froya Fabrikker A/S
1)
a.	Raw Materials	$200,000
	Accounts Payable		$200,000
b.	Work in Process	$185,000
	Raw Materials		$185,000
c.	Manufacturing Overhead	$63,000
	Utilities Expense	$7,000
	Accounts Payable		$70,000
d.	Work in Process	$230,000
	Manufacturing Overhead	$90,000
	Salaries Expense	$110,000
	Salaries and Wages Payable		$430,000
e.	Manufacturing Overhead	$54,000
	Accounts Payable		$54,000
f.	Advertising Expense	$136,000
	Accounts Payable		$136,000
g.	Manufacturing Overhead = 80% x $95000	$76,000
	Depreciation Expense	$19,000
	Accumulated Depreciation		$95,000
h.	Manufacturing Overhead ($120,000 x 80%)	$102,000
	Rent Expense	$18,000
	Accounts Payable		$120,000
i.	Work in Process	$390,000
	Manufacturing Overhead		$390,000
	Predetermined overhead rate = $360000/900 DLH	$400
	975 actual DLH × $400 per DLH = $390,000
j.	Finished Goods	$770,000
	Work in Process		$770,000
k.	Accounts Receivable	$1,200,000
	Sales		$1,200,000
	Cost of Goods Sold	$800,000
	Finished Goods		$800,000