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 $380,000 of manufacturing overhead for an estimated allocation base of 1,000 direct labor-hours. The following transactions took place during the year:
Raw materials purchased on account, $220,000. Raw materials used in production (all direct materials), $205,000. Utility bills incurred on account, $63,000 (90% related to factory operations, and the remainder related to selling and administrative activities). Accrued salary and wage costs: Direct labor (1,075 hours) $ 250,000 Indirect labor $ 94,000 Selling and administrative salaries $ 130,000 Maintenance costs incurred on account in the factory, $58,000 Advertising costs incurred on account, $140,000. Depreciation was recorded for the year, $88,000 (85% related to factory equipment, and the remainder related to selling and administrative equipment). Rental cost incurred on account, $113,000 (90% 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, $810,000. Sales for the year (all on account) totaled $1,400,000. These goods cost $840,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materials $ 34,000 Work in Process $ 25,000 Finished Goods $ 64,000 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.