T-Accounts; Financial Statements [LO3-1, LO3-2, LO3-3, LO3-4] 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:
Raw materials purchased on account, $200,000.
Raw materials used in production (all direct materials), $185,000.
Utility bills incurred on account, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities).
Accrued salary and wage costs:
Direct labor (975 hours) $ 230,000
Indirect labor $ 90,000
Selling and administrative salaries $ 110,000
Maintenance costs incurred on account in the factory, $54,000.
Advertising costs incurred on account, $136,000.
Depreciation was recorded for the year, $95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment).
Rental cost incurred on account, $120,000 (85% 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, $770,000.
Sales for the year (all on account) totaled $1,200,000.
These goods cost $800,000 according to their job cost sheets.
The balances in the inventory accounts at the beginning of the year were:
Raw Materials $ 30,000
Work in Process $ 21,000
Finished Goods $ 60,000
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.