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 $360,000 of manufacturing overhead for an estimated allocation base of 900 direct labor-hours. The following transactions took place during the year: A. Raw materials purchased for use in production, $295,000.
B. Raw materials requisitioned for use in production (all direct materials), $280,000.
C. Utility bills were incurred, $78,000 (95% related to factory operations, and the remainder related to selling and administrative activities).
D. Salary and wage costs were incurred:
Direct labor (890 hours) $325,000
Indirect labor $109,000
Selling and administrative salaries $205,000
E. Maintenance costs were incurred in the factory, $73,000.
F. Advertising costs were incurred, $155,000.
G. Depreciation was recorded for the year, $91,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment).
H. Rental cost incurred on buildings, $105,000 (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, $960,000.
K. Sales for the year (all on account) totaled $2,150,000. These goods cost $990,000 according to their job cost sheets.
The balances in the inventory accounts at the beginning of the year were:
Raw materials $49,000
Work in process $40,000
Finished Goods $79,000
Required:
1. Prepare journal entries to record the above data. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
2. Post your entries to T-accounts. (Don’t forget to enter the opening inventory balances below.) Determine the ending balances in the inventory accounts and in the Manufacturing Overhead account.
3. Prepare a schedule of cost of goods manufactured
4. Prepare a journal entry to close any balance in the Manufacturing Overhead account to Cost of Goods Sold. Prepare a schedule of cost of goods sold. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
5. Prepare an income statement for the year.
6. Job 412 was one of the many jobs started and completed during the year. The job required $9,900 in direct materials and 35 hours of direct labor time at a total direct labor cost of $10,800. If the job contained six units and the company billed at 60% above the unit product cost on the job cost sheet, what price per unit would have been charged to the customer?

Froya Fabrikker A/S of Bergen, Norway

1. Journal Entries:

a. Debit Raw materials $295,000

Credit Cash $295,000

To record purchase of raw materials

b. Debit Work in Process $280,000

Credit Raw materials $280,000

To record direct materials requisitioned for production.

c. Debit Manufacturing overhead $74,100

Debit Selling and Admin. $3,900

Credit Utilities Expenses $78,000

To record utilities expense for manufacturing and selling and admin.

d. Debit Work in Process $325,000

Debit Manufacturing overhead $109,000

Debit Selling and Admin. $205,000

Credit Salary and Wages Expense $639,000

To record labor costs for production, etc.

e. Debit Manufacturing overhead $73,000

Credit Maintenance Expense $73,000

To record factory maintenance expense.

f. Debit Selling and Admin. $155,000

Credit Advertising Expense $155,000

Tor record advertising expense.

g. Debit Manufacturing overhead $72,800

Debit Selling and Admin. $18,200

Credit Depreciation Expense $91,000

To record depreciation expense for production and selling and admin.

h. Debit Manufacturing overhead $89,250

Debit Selling and Admin $15,750

Credit Rent Expense $105,000

Rent expense for the year.

i. Debit Work in Process $326,000

Credit Manufacturing overhead $326,000

To apply overhead to production.

j. Debit Finished Goods $960,000

Credit Work in Process $960,000

To transfer completed jobs to finished goods inventory.

k. Debit Account Receivable $2,150,000

Credit Sales Revenue $2,150,000

To record the sale of goods on account.

k. Debit Cost of Goods Sold $990,000

Credit Finished Goods $990,000

To record the cost of goods sold.

2. T-accounts

Raw materials

Account Titles              Debit        Credit  

Beginning Balance   $49,000

Cash                         295,000

Work in process                        $280,000

Ending balance                              64,000

Work in process

Account Titles              Debit        Credit  

Beginning Balance    $40,000

Raw materials           280,000

Salaries and wages  325,000

Overhead                 326,000

Finished Goods inventory        $960,000

Ending balance                               11,000

Finished Goods

Account Titles              Debit        Credit  

Beginning Balance $79,000

Work in Process     960,000

Cost of goods sold                  $990,000

Ending balance                            49,000

Cost of Goods Sold

Account Titles               Debit        Credit

Finished Goods         $990,000

Underapplied overhead 92,150

Income Summary                       $1,082,150

Manufacturing Overhead

Account Titles              Debit        Credit  

Utilities expense      $74,100

Salaries and wages 109,000

Maintenance exp.     73,000

Depreciation exp.     72,800

Rent expense          89,250

Work in Process                     $326,000

Underapplied overhead             92,150

Totals                     $418,150    $418,150

Cash

Account Titles              Debit        Credit  

Raw materials        $295,000

Accounts receivable

Account Titles              Debit        Credit

Sales Revenue         $2,150,000

Sales Revenue

Account Titles              Debit        Credit

Accounts receivable                $2,150,000

Selling and Admin.

Account Titles              Debit        Credit  

Utilities expense          $3,900

Salaries and wages  205,000

Advertising expense 155,000

Depreciation exp.        18,200

Rent expense              15,750

3. Schedule of Cost of Goods Manufactured

Beginning WIP          $40,000

Raw materials           280,000

Direct labor               325,000

Overhead                 326,000

Total cost of production $971,000

Less ending WIP                 (11,000)

Cost of goods manufactured $960,000

4. Journal Entry to close Manufacturing Overhead to Cost of Goods Sold

Debit Cost of Goods Sold $92,150

Credit Manufacturing overhead $92,150

To close manufacturing overhead to cost of good of goods sold.

Schedule of Cost of Goods Sold

Finished Goods Inventory   $960,000

Underapplied overhead           92,150

Total cost of goods sold    $1,052,150

5. Income Statement for the year ended December 31

Sales Revenue               $2,150,000

Cost of goods sold           1,052,150

Gross profit                    $1,097,850

Selling and Admin expenses:

Utilities expense          $3,900

Salaries and wages  205,000

Advertising expense 155,000

Depreciation exp.        18,200

Rent expense              15,750

Total selling and admin. $397,850

Net Income                     $700,000

6. Job 412

Selling price per unit = $9,253

Explanation:

Estimated manufacturing overhead = $360,000

Estimated direct labor hours = 900

Predetermined overhead rate = $360,000/900 = $400 per DLH

Beginning Inventory Balances:

Raw materials $49,000

Work in process $40,000

Finished Goods $79,000

Job 412

Direct materials = $9,900

Direct labor hours = 35

Direct labor cost = $10,800

Applied overhead = $14,000 ($400 * 35)

Total cost = $34,700

Units in Job 412 = 6

Unit cost = $5,783 ($34,700/6)

Selling price = 60% markup

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