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 $378,000 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, $285,000. Raw materials used in production (all direct materials), $270,000. Utility bills incurred on account, $76,000 (85% related to factory operations, and the remainder related to selling and administrative activities). Accrued salary and wage costs: Direct labor (950 hours) $ 315,000 Indirect labor $ 107,000 Selling and administrative salaries $ 195,000 Maintenance costs incurred on account in the factory, $71,000 Advertising costs incurred on account, $153,000. Depreciation was recorded for the year, $89,000 (70% related to factory equipment, and the remainder related to selling and administrative equipment). Rental cost incurred on account, $114,000 (75% 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, $940,000. Sales for the year (all on account) totaled $2,050,000. These goods cost $970,000 according to their job cost sheets. The balances in the inventory accounts at the beginning of the year were: Raw Materials $ 47,000 Work in Process $ 38,000 Finished Goods $ 77,000 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.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Problem 3-15 (Algo) Journal Entries; 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
- Raw materials purchased on account, $285,000.
- Raw materials used in production (all direct materials), $270,000.
- Utility bills incurred on account, $76,000 (85% related to factory operations, and the remainder related to selling and administrative activities).
- Accrued salary and wage costs:
| Direct labor (950 hours) | $ 315,000 |
|---|---|
| Indirect labor | $ 107,000 |
| Selling and administrative salaries |
$ 195,000 |
- Maintenance costs incurred on account in the factory, $71,000
- Advertising costs incurred on account, $153,000.
Depreciation was recorded for the year, $89,000 (70% related to factory equipment, and the remainder related to selling and administrative equipment).- Rental cost incurred on account, $114,000 (75% 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, $940,000.
- Sales for the year (all on account) totaled $2,050,000. These goods cost $970,000 according to their
job cost sheets.
The balances in the inventory accounts at the beginning of the year were:
| Raw Materials | $ 47,000 |
|---|---|
| Work in Process | $ 38,000 |
| Finished Goods | $ 77,000 |
Required:
1. Prepare journal entries to record the preceding transactions.
2.
3. Prepare a schedule of cost of goods manufactured.
4A. Prepare a
4B. Prepare a schedule of cost of goods sold.
5. Prepare an income statement for the year.
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