Question

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:

Answer 1

Required:

Prepare journal entries to record the preceding transactions.

Answer:

a) raw materials 220,000 debit

accounts payable 220,00 credit

b) WIP 205,000 debit

raw materials 205,000 credit

c) factory overhead 56,700 debit

utilities expense 6,300 debit

utilities payable 63,000 credit

d) WIP 320,000 debit

Factory overhead 108,000 debit

salaries expense 200,000 debit

salaries and wages payables 628,000 credit

e) factory overhead 72,000 debit

cash 72,000 credit

f) advertizing expense 154,000 debit

cash 154,000 credit

g) factory overhead 67,500 debit

depreciation expense 22,500 debit

acc depreciation- equipment 90,000 credit

h) factory overhead 92,000 debit

rent expense 23,000 debit

cash 115,000 credit

i) WIP (970 hours x $380 each) 368,600 debit

factory overhead 368,600 credit

j) finished goods 950,000 debit

WIP 950,000 credit

k) account receivables 2,100,000 debit

sales revenues 2,100,000 credit

cost of goods sold 980,000 debit

finished goods 980,000 credit

Missing information:

d. Accrued salary and wage costs:

Direct labor (970 hours) $320,000

Indirect labor $108,000

Selling and administrative salaries $200,000

e. Maintenance costs incurred on account in the factory, $72,000.

f. Advertising costs incurred on account, $154,000.

g. Depreciation was recorded for the year, $90,000 (75% related to factory equipment, and the remainder related to selling and administrative equipment)

h. Rental cost incurred on account, $115,000 (80% related to factory facilities, 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, $950,000.

k. Sales for the year (ail on account) totaled $2.100.000. These goods cost $980.000 according to their job cost sheets.

Step-by-step explanation:

Applied overhead calculations:

`(Cost\: Of \:Manufacturing \:Overhead)/(Cost \:Driver)= Overhead \:Rate`

expected overhead 380,000

estimated cost driver (DLH) 1,000

rate: $380,000 / 1,000 = $380/DLH

there was 970 direct labor hours recorded therefore we apply the rate to that amount to get the amount.

For each entry we remember that debit = credit

explanation of the entries

The factory related expenses for rent and utiltiies will be capitalize through factory overhead

The raw materials used, an direct labor wil lbe part of workin process

the indirect labor part of factory overhead and the other department will be considered expenses for the period.

the advertizement cost are considered expenses as well.

the cost of good manufactured represent the finished jobs which are no longer "in process" and become finished.

Once they are sols we decrease the finished goods and recognize the cost of goods sold.