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 Norwegian currency is the krone, which is denoted Nkr). The company uses a sob-order costing system arid applies manufacturing overhead cost to jobs on the basis of direct labor-hours. At the beginning of the year, the following estimates were made for the purpose of computing the predetermined overhead rate: manufacturing overhead cost, Nkr360,000; and direct labor-hours, 900. The following transactions took place during the year (all purchases and services were acquired on account):
a. Raw materials were purchased for use in production, Nkr200,000.
b. Raw materials were requisitioned for use in production (all direct materials), Nkr185,000.
c. Utility bills were incurred, Nkr70,000 (90% related to factory operations, and the remainder related to selling and administrative activities).
d. Salary and wage costs were incurred:
Direct labor (975 hours) Nkr230,000
Indirect labor Nkr90,000
Selling and administrative salaries Nkr110,000
e. Maintenance costs were incurred in the factory, Nkr54,000.
f. Advertising costs were incurred, Nkrl36,000.
g. Depreciation was recorded for the year, Nkr95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment).
h. Rental cost incurred on buildings, Nkrl20,000 (85% related to factory operations, and the remainder related to selling and administrative facilities).
i. Manufacturing overhead cost was applied to jobs, Nkr__?
j. Cost of goods manufactured for the year, Nkr770,000.
k. Sales for the year (all on account) totaled Nkrl,200,000. These goods cost Nkr800,000 according to their job cost sheets.
The balances in the inventory accounts at the beginning of the year were:
Raw Materials Nkr30,000
Work in Process Nkr21,000
Finished Goods Nkr60,000
Required:
1. Prepare journal entries to record the preceding data.
2. Post your entries to T-accounts. (Don’t forget to enter the beginning inventory balances above). 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 Goods Sold. Prepare a schedule of cost of goods sold.
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 Nkr8,000 in direct materials and 39 hours of direct labor time at a total direct labor cost of Nkr9,200. The job contained only four units. If the company bills at a price 60% above the unit product cost on the job cost sheet, what price per unit would have been charged to the customer?

Answer 1

Answer:

a. Raw Material Purchases (Dr.) Nkr200,000

Accounts Payable (Cr.) Nkr200,000

b. Work in process  (Dr.) Nkr185,000

Raw material  (Cr.) Nkr185,000

c. Manufacturing Overhead  (Dr.) Nkr63,000

Selling and admin Overheads  (Dr.) Nkr7,000

Utility expense  (Cr.) Nkr70,000

d. Direct Labor wages  (Dr.) Nkr230,000

Indirect Labor wages  (Dr.) Nkr90,000

Selling and admin Salaries  (Dr.) Nkr110,000

Salaries Expense  (Cr.) Nkr 430,000

e. Maintenance expense  (Dr.) Nkr54,000

Cash  (Cr.) Nkr54,000

f. Advertising expense  (Dr.) Nkr36,000

Cash  (Cr.) Nkr36,000

g. Depreciation Expense  (Dr.) Nkr95,000

Accumulated depreciation  (Cr.) Nkr95,000

h. Rent Expense  (Dr.) Nkr20,000

Cash  (Cr.) Nkr20,000

Explanation:

i. No entry

j. Finished goods  (Dr.) Nkr770,000

Cost of goods manufactured  (Cr.) Nkr770,000

k. Cash  (Dr.) Nkr1,200,000

Sales  (Cr.) Nkr1,200,000