Reference no: EM132467354

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 $349,800 of manufacturing overhead for an estimated allocation base of 1,060 direct labor-hours.

The following transactions took place during the year:

1. Raw materials purchased on account, $230,000.
2. Raw materials used in production (all direct materials), $215,000.
3. Utility bills incurred on account, $65,000 (85% related to factory operations, and the remainder related to selling and administrative activities).

Accrued salary and wage costs:

Direct labor (1,135 hours)                                         $260,000

Indirect labor                                                           $96,000

Selling and administrative salaries                                   $140,000

Maintenance costs incurred on account in the factory,        $60,000
Advertising costs incurred on account,                             $142,000.
Depreciation was recorded for the year,                              $90,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment).
Rental cost incurred on account,                                    $115,000 (80% 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,                            $830,000.
Sales for the year (all on account) totaled                           $1,500,000. These goods cost $860,000 according to their job cost sheets.

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

Raw Materials             $36,000

Work in Process           $27,000

Finished Goods            $66,000

Required:

Question 1. Prepare journal entries to record the preceding transactions.

Question 2. Post your entries to T-accounts. (Don't forget to enter the beginning inventory balances above.)

Question 3. Make a schedule of cost of goods manufactured.

Question 4A. Make a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold.

Question 4B. Make a schedule of cost of goods sold.

Question 5. Make an income statement for the year.