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PROBLEM 2-26A Journal Entries; TAccounts; Financial Statements [LO2-1, LO2-2, Lo2-3, Lo2-, LO2-5, LO2-6, LO2-7 Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in overhead cost to jobs on the basis of direct labor-hours
PROBLEM 2-26A Journal Entries; TAccounts; Financial Statements [LO2-1, LO2-2, Lo2-3, Lo2-, LO2-5, LO2-6, LO2-7
Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in 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 (all purchases and services were acquired on account): North Sea oil fields. The company uses a job-order costing system and applies manufacturing
a. Raw materials were purchased for use in production, $200,000.
b. Raw materials were requisitioned for use in production (all direct materials), $185,000.
c. Utility bills were incurred, $70,000 (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) $230,000
Indirect labor $90,000
Selling and administrative salaries $110,000
e. Maintenance costs were incurred in the factory, $54,000.
f. Advertising costs were incurred, $136,000
g. Depreciation was recorded for the year, $95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment)
h. Rental cost incurred on buildings, $120,000 (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, $770,000
k. 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 as follows:
Raw Materials $30,000
Work in Process $21,000
Finished Goods $60,000
Required:
1. Prepare a schedule of cost of goods manufactured.
2. Prepare a schedule of cost of goods sold.
3. Prepare an income statement for the year.
4. Job 412 was one of the many jobs started and completed during the year. The job required $8,000 in direct materials and 39 hours of direct labor time at a total direct labor cost of $9,200. 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?
Expert Solution
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ANSWER: Part 1. Direct materials costs -Beginning inventory $ 30,000 - Purchases of direct materials $200,000 -Cost of direct materials available for use $230,000 Ending inventory $ -45,000 Direct Material Used $ 185,000 Direct manufacturing labor costs $ 230,000 Manufacturing Overheads applied $360,000/900 Hours*975 Actual Hours) $ 390,000 Manufacturing costs incurred $ 805,000 Add beginning work-in-process inventory $ 21,000 Total manufacturing costs to account for $ 826,000 Less Ending WIP $ -56,000 Cost of Goods Manufactured $ 770,000 Part 2. Cost of goods sold: Beginning finished goods $ 60,000 Cost of goods manufactured (part 3) $770,000 Cost of goods available for sale $830,000 Ending finished goods $ -30,000 $ 800,000 Part 3. Revenues $1,200,000 Cost of goods sold (unadjusted) $ 800,000 Less: Adjustment for overapplied overheads $ -5,000 $ 795,000 Gross Margin $ 405,000 Less: Operating Expense Utility Expense 70000*90% $ 7,000 Selling and Admin Salaries $ 110,000 Advertising Cost $ 136,000 Depreciation 95000*20% $ 19,000 Rent 120000*15% $ 18,000 $ 290,000 Operating Income $ 115,000 Part 4. Direct Material $ 8,000 Direct Labor $ 9,200 Manufacturing Overhead applied $ 15,600 $360,000/900*39 Hour Total Cost $ 32,800 Cost per unit of Job $ 8,200 $32,800/4 Add: 60% $ 4,920 Price per unit of Job ($8,200+$4,920) $ 13,120
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