Answered

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 and 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 (all purchases and services were acquired on account):

a. Raw materials purchased for use in production, $275,000.
b. Raw materials requisitioned for use in production (all direct materials), $260,000.
c. Utility bills were incurred, $74,000 (95% related to factory operations, and the remainder related to selling and administrative activities).
d. Salary and wage costs were incurred:

Direct labor (1,100 hours) $305,000
Indirect labor $105,000
Selling and administrative salaries $185,000

e. Maintenance costs were incurred in the factory, $69,000.
f. Advertising costs were incurred, $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 buildings, $112,000 (85% related to factory operations, 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, $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 $45,000
Work in process $36,000
Finished Goods $75,000

Required:
a. Prepare journal entries to record the above data.
b. Post your entries to T-accounts.
c. Prepare a schedule of cost of goods manufactured.
d. Prepare an income statement for the year.

Sagot :

Anthougoid

Answer:

Froya Fabrikker A/S of Bergen, Norway

a. Journal Entries

a. Debit Raw materials $275,000

Credit Accounts payable $275,000

To record purchase of raw materials on account.

b. Debit WIP $260,000

Credit Raw materials $260,000

To record materials requisitioned for production.

c. Debit Manufacturing overhead $70,300

Debit Selling and admin. $3,700

Credit Utilities expense $74,000

To close utilities expenses.

d. Debit WIP $305,000

Debit Manufacturing overhead $105,000

Debit Selling and Admin. $185,000

Credit Payroll Expense $595,000

To close payroll expenses.

e. Debit Manufacturing overhead $69,000

Credit Maintenance expense $69,000

To close maintenance expense.

f. Debit Selling and admin. $151,000

Credit Advertising expense $151,000

To close advertising expense.

g. Debit Manufacturing overhead $69,600

Debit Selling and admin. $17,400

Credit Depreciation expense $87,000

To close depreciation expense.

h. Debit Manufacturing overhead $95,200

Debit Selling and admin $16,800

Credit Rent expense $112,000

To close rent expense.

i. Debit WIP $418,000

Credit Manufacturing overhead applied $418,000

To record manufacturing overhead applied to production at $380 for 1,100 direct labor-hours.

j. Debit Finished goods $920,000

Credit WIP $920,000

To transfer completed goods to finished goods inventory.

k. Debit Accounts receivable $1,950,000

Credit Sales revenue $1,950,000

To record sale of goods on account.

Debit Cost of goods sold $950,000

Credit Finished goods $950,000

To record the cost of goods sold.

b. T-accounts

Raw materials

Account Titles           Debit       Credit

Beginning balance $45,000

Accounts payable  275,000

Work in Process                       $260,000

Work in process

Account Titles           Debit       Credit

Beginning balance  $36,000

Raw materials         260,000

Payroll expense      305,000

Manufacturing

overhead applied    418,000

Finished goods inventory      $920,000

Finished Goods

Account Titles           Debit       Credit

Beginning balance  $75,000

Work in Process     920,000

Cost of goods sold                  $950,000

Cost of goods sold

Account Titles           Debit       Credit

Finished goods    $950,000

Accounts Payable

Account Titles           Debit       Credit

Raw materials                        $275,000

Manufacturing overhead

Account Titles          Debit       Credit

Utilities expense  $70,300

Payroll expense   105,000

Maintenance exp  69,000

Depreciation exp. 69,600

Rent expense       95,200

Work in Process                  $418,000

Overhead applied  8,900

Sales Revenue

Account Titles          Debit       Credit

Accounts receivable       $1,950,000

Accounts Receivable

Account Titles          Debit       Credit

Sales revenue    $1950,000

Selling and admin.

Utilities expense    $3,700

Payroll expense   185,000

Advertising exp.   151,000

Depreciation exp.  17,400

Rent expense        16,800

Utilities Expense

Manufacturing overhead         $70,300

Selling and admin.                        3,700

Payroll Expense

Work in Process                      $305,000

Manufacturing overhead          105,000

Selling and admin.                     185,000

Maintenance expense

Manufacturing overhead         $69,000

Advertising expense

Selling and admin.                   $151,000

Depreciation expense

Manufacturing overhead        $69,600

Selling and admin.                      17,400

Rent expense

Manufacturing overhead       $95,200

Selling and admin.                     16,800

c. Schedule of Cost of Goods Manufactured:

Beginning WIP        $36,000

Raw materials         260,000

Payroll expense      305,000

Manufacturing

overhead applied    418,000

Ending WIP              (99,000)

Finished goods    $920,000

d. Income Statement for the year ended December 31

Sales Revenue                $1,950,000

Cost of goods sold              950,000

Gross profit                     $1,000,000

Selling and Administrative expenses:

Utilities expense    $3,700

Payroll expense   185,000

Advertising exp.   151,000

Depreciation exp.  17,400

Rent expense        16,800 $373,900

Net income                        $626,100

Explanation:

a) Data and Calculations:

Estimated manufacturing overhead = $380,000

Estimated direct labor-hours = 1,000

Actual direct labor-hours = 1,100

Predetermined overhead rate = $380 ($380,000/1,000)

Analysis of Transactions:

a. Raw materials $275,000 Accounts payable $275,000

b. WIP $260,000 Raw materials $260,000

c. Manufacturing overhead (Utility) $70,300 Selling and admin. $3,700 Utilities expense $74,000

d. WIP (direct labor) $305,000 Manufacturing overhead (indirect labor) $105,000 Selling and Admin. $185,000 Payroll Expense $595,000

e. Manufacturing overhead (maintenance) $69,000 Maintenance expense $69,000

f. Selling and admin. $151,000 Advertising expense $151,000

g. Manufacturing overhead $69,600 Selling and admin. $17,400 Depreciation expense $87,000

h. Manufacturing overhead $95,200 Selling and admin $16,800 Rent $112,000

i. WIP $418,000 Manufacturing overhead applied $418,000 ($380 * 1,100)

j. Finished goods $920,000 WIP $920,000

k. Accounts receivable $1,950,000 Sales revenue $1,950,000

Cost of goods sold $950,000 Finished goods $950,000

Beginning balances:

Raw materials $45,000

Work in process $36,000

Finished Goods $75,000

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