{"id":187893,"date":"2025-02-06T07:57:09","date_gmt":"2025-02-06T07:57:09","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=187893"},"modified":"2025-02-06T07:57:11","modified_gmt":"2025-02-06T07:57:11","slug":"froya-fabrikker-a-s-of-bergen-norway-is-a-small-company-that-manufactures-speciality-heavy-equipment-for-use-in-north-sea-oil-fields","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/02\/06\/froya-fabrikker-a-s-of-bergen-norway-is-a-small-company-that-manufactures-speciality-heavy-equipment-for-use-in-north-sea-oil-fields\/","title":{"rendered":"Froya Fabrikker A\/S of Bergen, Norway, is a small company that manufactures speciality heavy equipment for use in North Sea oil fields"},"content":{"rendered":"\n

Froya Fabrikker A\/S of Bergen, Norway, is a small company that manufactures speciality 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 labot hours. Its predetermined overhead role 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 10 Dom 100 Raw materials purchased on account, $285,000. D. Raw materials used in production (all direct moteris, 5270,000 c Utility bilis incurred on account. 576.000 (85% related to factory operations, and the remainder related to pering ond administrativo activities) d. Accrued salary and wage costs Doc Direct labor (950 hours) Indirect labor Selling and administrative salaries $315, $107.00 5 195.000 .<\/p>\n\n\n\n

 Rounce e. Maintenance costs incurred on account in the factory, 571000 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) n. Rental cost incurred on account. $114.000 (75% related to factory facilities, and the remainder related to selling and administrativo facilities) Manufacturing overhead cost was applied to jobs, $_2 Cost of goods manufactured for the year $940.000 k Sales for the year fall on account totaled $2,050,000. Those 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 $77.00 Required: 1. Prepare journal entries to record the preceding transactions<\/p>\n\n\n\n

The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n

roya Fabrikker A\/S employs a job order costing system, allocating manufacturing overhead based on direct labor hours.he predetermined overhead rate is calculated by dividing the estimated manufacturing overhead by the estimated direct labor hours:
\ue200calculator\ue202turn0calculator0\ue201<\/p>\n\n\n\n

his results in a predetermined overhead rate of $420 per direct labor hour.
The following journal entries record the transactions for the year:<\/p>\n\n\n\n

    \n
  1. Purchase of Raw Materials on Account<\/strong> o record the purchase of raw materials: Account Debit ($) Credit ($) Raw Materials Inventory 285,000 Accounts Payable 285,000<\/li>\n\n\n\n
  2. Usage of Raw Materials in Production<\/strong> ll raw materials used are direct materials: Account Debit ($) Credit ($) Work in Process (WIP) 270,000 Raw Materials Inventory 270,000<\/li>\n\n\n\n
  3. Utility Bills Incurred<\/strong> tility costs are allocated between factory operations (85%) and selling and administrative activities (15%): Account Debit ($) Credit ($) Manufacturing Overhead 64,600 Utilities Expense 11,400 Accounts Payable 76,000<\/li>\n\n\n\n
  4. Accrued Salary and Wage Costs<\/strong> ecording direct labor, indirect labor, and selling and administrative salaries: Account Debit ($) Credit ($) Work in Process (WIP) 315,000 Manufacturing Overhead 107,000 Salaries Expense 195,000 Salaries and Wages Payable 617,000<\/li>\n\n\n\n
  5. Factory Maintenance Costs Incurred<\/strong> o record maintenance costs: Account Debit ($) Credit ($) Manufacturing Overhead 71,000 Accounts Payable 71,000<\/li>\n\n\n\n
  6. Advertising Costs Incurred<\/strong> o record advertising expenses: Account Debit ($) Credit ($) Advertising Expense 153,000 Accounts Payable 153,000<\/li>\n\n\n\n
  7. Depreciation Recorded for the Year<\/strong> epreciation is allocated between factory equipment (70%) and selling and administrative equipment (30%): Account Debit ($) Credit ($) Manufacturing Overhead 62,300 Depreciation Expense 26,700 Accumulated Depreciation 89,000<\/li>\n\n\n\n
  8. Rental Costs Incurred<\/strong> ental costs are allocated between factory facilities (75%) and selling and administrative facilities (25%): Account Debit ($) Credit ($) Manufacturing Overhead 85,500 Rent Expense 28,500 Accounts Payable 114,000<\/li>\n\n\n\n
  9. Application of Manufacturing Overhead to Jobs<\/strong> verhead is applied based on actual direct labor hours (950 hours) at the predetermined rate of $420 per hour: Account Debit ($) Credit ($) Work in Process (WIP) 399,000 Manufacturing Overhead 399,000<\/li>\n\n\n\n
  10. Cost of Goods Manufactured<\/strong> o record the completion of jobs: Account Debit ($) Credit ($) Finished Goods Inventory 940,000 Work in Process (WIP) 940,000<\/li>\n\n\n\n
  11. Sales on Account<\/strong> ecording sales revenue and the corresponding cost of goods sold: Account Debit ($) Credit ($) Accounts Receivable 2,050,000 Sales Revenue 2,050,000 Account Debit ($) Credit ($) ————————- ———– ———— Cost of Goods Sold 970,000 Finished Goods Inventory 970,000 Explanation:<\/strong><\/li>\n<\/ol>\n\n\n\n

    hese journal entries systematically capture the flow of costs in a job order costing system:<\/p>\n\n\n\n

      \n
    • Purchasing and Using Materials:<\/strong> aw materials are initially recorded in the Raw Materials Inventory account. When these materials are used in production, their costs are transferred to the Work in Process (WIP) account.<\/li>\n\n\n\n
    • Labor Costs:<\/strong> irect labor costs are added to WIP, while indirect labor costs are allocated to Manufacturing Overhead.<\/li>\n\n\n\n
    • Overhead Costs:<\/strong> ctual overhead costs (such as utilities, maintenance, depreciation, and rent) are accumulated in the Manufacturing Overhead account. This account is later applied to WIP based on the predetermined overhead rate.<\/li>\n\n\n\n
    • Applying Overhead:<\/strong> verhead is applied to jobs using the predetermined rate multiplied by the actual direct labor hours incurred.<\/li>\n\n\n\n
    • Completion and Sale of Goods:<\/strong> pon completion, the total<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

      Froya Fabrikker A\/S of Bergen, Norway, is a small company that manufactures speciality 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 labot hours. Its predetermined overhead role was based on a cost formula that […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-187893","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/187893","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=187893"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/187893\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=187893"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=187893"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=187893"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}