Question

Bunnell Corporation is a manufacturer that uses job-order costing. On January 1, the company’s inventory balances were as follows:

Raw materials	$	65,000
Work in process	$	20,400
Finished goods	$	52,800

The company applies overhead cost to jobs on the basis of direct labor-hours. For the current year, the company’s predetermined overhead rate of $15.75 per direct labor-hour was based on a cost formula that estimated $630,000 of total manufacturing overhead for an estimated activity level of 40,000 direct labor-hours. The following transactions were recorded for the year:

1. Raw materials were purchased on account, $646,000.
2. Raw materials use in production, $608,000. All of of the raw materials were used as direct materials.
3. The following costs were accrued for employee services: direct labor, $580,000; indirect labor, $150,000; selling and administrative salaries, $317,000.
4. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $376,000.
5. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $480,000.
6. Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year.
7. Jobs costing $1,765,050 to manufacture according to their job cost sheets were completed during the year.
8. Jobs were sold on account to customers during the year for a total of $2,970,000. The jobs cost $1,775,050 to manufacture according to their job cost sheets.

rev: 09_28_2018_QC_CS-140681

Required:

13. Assuming that the company closes its underapplied or overapplied overhead to Cost of Goods Sold, what is the adjusted cost of goods sold for the year?

14. What is the gross margin for the year?

15. What is the net operating income for the year?

Answer 1

Answer:
Predetermined overhead rate         = Estimated overhead / Actual Direct Labor Hours Estimated overhead = Predetermined overhead rate x Actual Direct Labor Hours                                             =    $ 15.75 x 41,000 DLH                                             =     $ 645,750
Actual Overhead    = Manufacturing overhead costs   + Indirect Labor                                       =    $ 480,000 + $ 150,000                                       =     $ 630,000
Over / Under Applied Overhead                 =    Actual Overhead (-) Estimated overhead                 =     $ 630,000 (-) $ 645,750                 =    $ 15,750 ( OverApplied)
13)
Particulars	Amount (in $ )
Unadjusted cost of Goods sold	$ 1,775,050
Less: Overapplied Overhead	( $ 15,750 )
Adjusted Cost of Goods Sold for the Year	$ 1,759,300
14)
Particulars	Amount (in $ )
Sales	$ 2,970,000
Less: Adjusted Cost of goods sold	( $ 1,759,300 )
Gross Margin for the Year	$ 1,210,700
15)
Particulars	Amount (in $ )
Gross Margin	$ 1,210,700
Less: Selling and administrative Salaries	($ 317,000)
Less: Selling and Administrative Expenses	($ 376,000)
Net Operating Income	$ 517,700