Question

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

Raw materials $ 86,500

Work in process $ 22,600

Finished goods $ 63,900 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 $15.00 per direct labor-hour was based on a cost formula that estimated $600,000 of total manufacturing overhead for an estimated activity level of 40,000 direct labor-hours.

The following transactions were recorded for the year: Raw materials were purchased on account, $632,000. Raw materials use in production, $585,600. All of the raw materials were used as direct materials.

The following costs were accrued for employee services:

direct labor, $550,000; indirect labor, $150,000; selling and administrative salaries, $328,000. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $375,000. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $450,000. Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year. Jobs costing $1,670,300 to manufacture according to their job cost sheets were completed during the year. Jobs were sold on account to customers during the year for a total of $3,172,500. The jobs cost $1,680,300 to manufacture according to their job cost sheets. 1. Record the raw materials used in production.

2. What is the ending balance in Raw Materials?

3. What is the journal entry to record the labor costs incurred during the year?

4. What is the total amount of manufacturing overhead applied to production during the year?

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

6. What is the journal entry to record the transfer of completed jobs that is referred to in item g above?

7. What is the ending balance in Work in Process?

8. What is the total amount of actual manufacturing overhead cost incurred during the year?

9. Is manufacturing overhead underapplied or overapplied for the year? By how much?

10. What is the cost of goods available for sale during the year?

11. What is the journal entry to record the cost of goods sold referred to in item h above?

12. What is the ending balance in Finished Goods?

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

1)	Transaction	General Journal					Debit	Credit
	b.	Work in process inventory					585,600
		Raw materials inventory						585,600
2)	Ending balance in Raw Materials
	Raw materials
	Beg.bal	86,500
	a.	632,000	585,600	b.
	End bal	132,900
3)	Transaction	General Journal					Debit	Credit
	c.	Work in process inventory					550,000
		Manufacturing overhead					150,000
		Selling & administrative salaries					328,000
		Factory wages payable						1,028,000
4)	Manufacturing overhead applied ($11.75*41,000 DLH's)			($15*41000 DLH's			615000	answer
5)	Total manufacturing cost added during the year
	Direct materials				585,600
	Direct labor				550,000
	overhead applied				615,000
	Total.				1,750,600
	total manufacturing cost				1,750,600	answer
6)	Transaction	General Journal					Debit	Credit
	g.	Finished goods inventory					1,670,300
		Work in process inventory						1,670,300
7)	Work in process
	Beg.bal	22,600	1,670,300	g.
	b.	585,600
	c.	550,000
	f.	615,000
	End bal	102,900
8)	total actual manufacturing overhead cost					600,000	answer
	indirect labor			150000
	Various manfuacturing cost			450,000
	total			600000
9)	overapplied overhead			15,000	answer
10)	Cost of goods available for sale				1,734,200	answer
	(63900+1,670,300)
11)	Transaction	General Journal					Debit	Credit
	h.	cost of good sold					1,680,300
		Finished goods inventory						1,680,300
12)	Finished goods	Finished Goods
	Beg.bal	63,900
	g.	1,670,300	1,680,300	h.
	End bal	53,900
13)	Adjusted cost of goods sold				1,665,300
	(1,680,300-15000)
14)	Gross margin				1,507,200
	(sales - adjusted cost of goods sold)
15)	Net operating income				804,200	answer
	Gross margin			1,507,200
	less
	Selling & adm salaries			-328,000
	Various selling & adm			-375,000
	Net operating income			804,200