Reference no: EM132611473
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 $395,600 of manufacturing overhead for an estimated allocation base of 920 direct labor-hours.
The following transactions took place during the year:
a. Raw materials purchased on account, $290,000.
b. Raw materials used in production (all direct materials), $275,000.
c. Utility bills incurred on account, $77,000 (90% related to factory operations, and the remainder related to selling and administrative activities).
d. Accrued salary and wage costs:
Direct labor (970 hours) $320,000
Indirect labor $108,000
Selling and administrative salaries $200,000
e. Maintenance costs incurred on account in the factory, $72,000
f. Advertising costs incurred on account, $154,000.
g. Depreciation was recorded for the year, $90,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).
h. Rental cost incurred on account, $115,000 (80% 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, $950,000.
k. Sales for the year (all on account) totaled $2,100,000. These goods cost $980,000 according to their job cost sheets.
The balances in the inventory accounts at the beginning of the year were:
Raw Materials $48,000
Work in Process $39,000
Finished Goods $78,000
Required:
Problem 1. Prepare journal entries to record the preceding transactions.
Problem 2. Post your entries to T-accounts. (Don't forget to enter the beginning inventory balances above.)
Problem 3. Prepare a schedule of cost of goods manufactured.
Problem 4A. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.
Problem 4B. Prepare a schedule of cost of goods sold.
Problem 5. Prepare an income statement for the year.