Inventory and Cost
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 by 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: [pic] 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). . 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: [pic] 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.
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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? SOLUTION: 1. |a. |Raw Materials |200,000 | | | |Accounts Payable | |200,000 | | | | | | |b. Work in Process |185,000 | | | |Raw Materials | |185,000 | | | | | | |c. Manufacturing Overhead |63,000 | | | |Utilities Expense |7,000 | | | |Accounts Payable | |70,000 | | | | | | |d. Work in Process |230,000 | | | |Manufacturing Overhead |90,000 | | | |Salaries Expense |110,000 | | | |Salaries and Wages Payable | |430,000 | | | | | | |e. Manufacturing Overhead |54,000 | | | |Accounts Payable | |54,000 | | | | | | |f. Advertising Expense |136,000 | | | |Accounts Payable | |136,000 | | | | | | |g. Manufacturing Overhead |76,000 | | | |Depreciation Expense |19,000 | | | |Accumulated Depreciation | |95,000 | | | | | | |h. Manufacturing Overhead |102,000 | | | |Rent Expense |18,000 | | | |Accounts Payable | |120,000 | | | | | | |i. Work in Process |390,000 | | | |Manufacturing Overhead | |390,000 | [pic] 975 actual DLH ? Nkr400 per DLH = Nkr390,000 |j. Finished Goods |770,000 | | | |Work in Process | |770,000 | | | | | | |k. Accounts Receivable |1,200,000 | | | |Sales | |1,200,000 | | |Cost of Goods Sold |800,000 | | | |Finished Goods | |800,000 | . |Accounts Receivable |Sales | |(k) |1,200,000 | |Bal. |30,000 | |Bal. |21,000 | |Bal. 60,000 | | | | | | | |(a) |200,000 |(d) | | | | | | |Direct materials: | | | |Raw materials inventory, beginning |Nkr 30,000 | | |Purchases of raw materials | 200,000 | | |Materials available for se |230,000 | | |Raw materials inventory, ending | 45,000 | | |Materials used in production | |Nkr185,000 | |Direct labor | |230,000 | |Manufacturing overhead applied to work in process | | 390,000 | |Total manufacturing costs | |805,000 | |Add: Work in process, beginning | | 21,000 | | | |826,000 | |Deduct: Work in process, ending | | 56,000 | |Cost of goods manufactured | |Nkr770,000 | | | | | 4. |Manufacturing Overhead |5,000 | | | |Cost of Goods Sold | |5,000 | | | | | | | |Schedule of cost of goods sold: | | | | |Finished goods inventory, beginning | |Nkr 60,000 | | |Add: Cost of goods manufactured | | 770,000 | | |Goods available for sale | |830,000 | | |Deduct finished goods inventory, ending | | 30,000 | | |Unadjusted cost of goods sold | |800,000 | | |Deduct: Overapplied overhead | | 5,000 | | |Adjusted cost of goods sold | |Nkr795,000 | 5. Froya Fabrikker A/S | |Income Statement | |Sales | |Nkr1,200,000 | |Cost of goods sold | | 795,000 | |Gross margin | |405,000 | |Selling and administrative expenses: | | | |Advertising expense |Nkr136,000 | | |Utilities expense |7,000 | | |Salaries expense |110,000 | | |Depreciation expense |19,000 | | |Rent expense | 18,000 | 290,000 | |Net operating income | |Nkr 115,000 | 6. Direct materials |Nkr 8,000 | |Direct labor |9,200 | |Manufacturing overhead applied | 15,600 | |(39 hours ? Nkr400 per hour) | | |Total manufacturing cost |32,800 | |Add markup (60% ? Nkr32,800) | 19,680 | |Total billed price of Job 412 |Nkr52,480 | Nkr52,480 ? 4 units = Nkr13,120 per unit