Question

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

Raw materials	$	50,000
Work in process	$	30,800
Finished goods	$	43,200

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 $12.00 per direct labor-hour was based on a cost formula that estimated $480,000 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, $696,000.
2. Raw materials used in production, $655,400. All of of the raw materials were used as direct materials.
3. The following costs were accrued for employee services: direct labor, $430,000; indirect labor, $150,000; selling and administrative salaries, $251,000.
4. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $411,000.
5. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $330,000.
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 $1,521,800 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 $3,255,000. The jobs cost $1,531,800 to manufacture according to their job cost sheets.

5. What is the total manufacturing cost added to Work in Process during the year?

Answer 1

Total manufacturing cost added to the work in process durring the year:

= Materials + Direct Labour + Manufacturing overhead cost - Cost of finished jobs

= 655,400 + 430,000 + 492,000 - 1,521,800 = 55,600

Closing Balance = Opening WIP + Addition during the year = 30,800 + 55,600 = 86,400

Through Cost Sheet:

Job Costsheet	$
Direct Materials	655400
Direct Labour	430000
Manufacturing overhead (41,000*12)	492000
Total manufacturing cost during the year	1577400
Add: opening WIP	30800
Less: Cost of finished jobs	1521800
Closing WIP @ total manufacturing cost	86400

There is difference between actual and applied manufacturing overheads:

Actual Manufacturing Overhead		$480,000
(150,000+330,000)
Applied Manufacturing Overhead		$492,000
Overapplied Manufacturing Overhead		$12,000
(To be adjusted against COGS)

Adustment of overapplied manufacturing overhead:

Cost of goods sold		$15,31,800
Less: Over applied manufacturing overhead		$12,000
Net cost of goods sold		$15,19,800
Finished Goods
Opening balance		$43,200
Transfer		$1521,800
Less COGS		$1,531,800
Closing balance		$33,200