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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 $372,000 of manufacturing overhead for an estimated allocation base of 1,200 direct labor-hours. The following transactions took place during the year:

  1. Raw materials purchased on account, $240,000.
  2. Raw materials used in production (all direct materials), $225,000.
  3. Utility bills incurred on account, $67,000 (95% related to factory operations, and the remainder related to selling and administrative activities).
  4. Accrued salary and wage costs:
Direct labor (1,275 hours) $ 270,000
Indirect labor $ 98,000
Selling and administrative salaries $

150,000

  1. Maintenance costs incurred on account in the factory, $62,000
  2. Advertising costs incurred on account, $144,000.
  3. Depreciation was recorded for the year, $80,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment).
  4. Rental cost incurred on account, $105,000 (90% related to factory facilities, and the remainder related to selling and administrative facilities).
  5. Manufacturing overhead cost was applied to jobs, $ ? .
  6. Cost of goods manufactured for the year, $850,000.
  7. Sales for the year (all on account) totaled $1,600,000. These goods cost $880,000 according to their job cost sheets.

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

Raw Materials $ 38,000
Work in Process $ 29,000
Finished Goods $ 68,000

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.

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