Question

In: Accounting

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

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

Raw materials $40,000

Work in process $18,000

Finished goods $35,000

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 $16.25 per direct labor-hour was based on a cost formula that estimated $650,000 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, $510,000.

  • Raw materials used in production, $480,000. All of of the raw materials were used as direct materials.

  • The following costs were accrued for employee services: direct labor, $600,000; indirect labor, $150,000; selling and administrative salaries, $240,000.

  • Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $367,000.

  • Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $500,000.

  • Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year.

  • Jobs costing $1,680,000 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 $2,800,000. The jobs cost $1,690,000 to manufacture according to their job cost sheets.

Required (Show all work/Calculations!)

  1. What is the journal entry to record raw materials used in production?

  2. What is the ending balance in Raw Materials? (Show T-Account)

  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? (Show complete calculations)

  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 bullet point number 7 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? (Show T-Account)

  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? (Show complete calculations)

  11. What is the journal entry to record the cost of goods sold referred to in bullet point number 8 above?

  12. What is the ending balance in Finished Goods? (Show T-Account)

  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?

Solutions

Expert Solution

a. journal entry to record raw materials used in production

Work in progress $ 480,000
To Raw material $ 480,000

b. Raw material A/C

To opening Balance $ 40,000 By Raw material used in production $ 480,000
To Purchase $ 510,000 By Closing Balance $ 70,000
Total $ 550,000 Total $ 550,000

c. Journal entry for Labour Cost

Direct Labour cost $ 600,000
Indirect labour Cost $ 150,000
Selling & administrative Salaries $ 240,000
To Wages A/c $ 990,000

d. Total amount of manufacturing overhead applied to production during the year is =

= 41,000 direct labour hours actually worked * $ 16.25 per direct labour hour = $ 666,250

e.Total manufacturing cost added to work in progress is

= Raw Materials + Direct labour + Manufacturing overhead

= $ 480,000 + $ 600,000 + $ 666,250

= $ 1746,250

f.

Finished Goods A/c $ 1,680,000
To Work in Progress A/c $ 1,680,000

g. Work in progress A/C

To Opening Balance $ 18,000 By Finished Goods $ 1,680,000
To Raw materials used in production $ 480,000 By Closing Balance $ 1,164,250
To direct labour $ 600,000
To Manufacturing overhead $ 1,746,250
Total $ 2,844,250 Total $ 2,844,250

h. Total amount of actual manufacturing oerhead incurred during the year

=indirect labour cost + various manufacturing overhead costs

= $ 150,000 + $ 500,000

= $ 650,000

i. Manufacturing over head is overapplied by $ 16,250 ($ 666,250 - $ 650,000)

j. Cost of goods available for sale is opening finished goods + finished goods during the year.

= $ 35,000 + $ 1,680,000 = $ 1,715,000

k.

Cost of Goods Sold A/C $ 1,715,000
To Finished Goods A/c $ 1,715,000

l. Ending balance of Finished goods

To opening Balance $ 35,000 By cost incurred on goods sold $ 1,690,000
To goods completed during the year $ 1,680,000 By closing Balance $ 25,000
Total $ 1,715,000 Total $ 1,715,000

m. Adjusted Cost of goods sold for the year = Cost of goods sold - Manufacturing overhead overapplied

= $ 1,715,000 - $ 16,250

= $ 1,698,750

n. Gross Margin for the year = Sale - Cost of goods sold

= $ 2,800,000 - $ 1,698,750

= $ 1,101,250

o. Net operating income for the year = $ 494,250

Gross margin = $ 1,101,250

less: sell and administrative salaries = $ 240,000

less: selling & administrative expenses = $ 367,000

= $ 494,250


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