Question

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

Raw materials	$	66,000
Work in process	$	33,600
Finished goods	$	38,400

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 $13.50 per direct labor-hour was based on a cost formula that estimated $540,000 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, $684,000.
2. Raw materials use in production, $646,400. All of of the raw materials were used as direct materials.
3. The following costs were accrued for employee services: direct labor, $490,000; indirect labor, $150,000; selling and administrative salaries, $319,000.
4. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $423,000.
5. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $390,000.
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 $1,623,300 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 $3,547,500. The jobs cost $1,633,300 to manufacture according to their job cost sheets

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					646,400
		Raw materials inventory						646,400
2)	Ending balance in Raw Materials
	Raw materials
	Beg.bal	66,000
	a.	684,000	646,400	b.
	End bal	103,600
3)	Transaction	General Journal					Debit	Credit
	c.	Work in process inventory					490,000
		Manufacturing overhead					150,000
		Selling & administrative salaries					319,000
		Factory wages payable						959,000
4)	Manufacturing overhead applied			(41000*13.50)			553500	answer
5)	Total manufacturing cost added during the year
	Direct materials				646,400
	Direct labor				490,000
	overhead applied				553,500
	Total.				1,689,900
	total manufacturing cost				1,689,900	answer
6)	Transaction	General Journal					Debit	Credit
	g.	Finished goods inventory					1,623,300
		Work in process inventory						1,623,300
7)	Work in process
	Beg.bal	33,600	1,623,300	g.
	b.	646,400
	c.	490,000
	f.	553,500
	End bal	100,200
8)	total actual manufacturing overhead cost					540,000	answer
	indirect labor			150000
	Various manfuacturing cost			390,000
	total			540000
9)	overapplied overhead			13,500	answer
10)	Cost of goods available for sale				1,661,700	answer
	(38400+1,623,300)
11)	Transaction	General Journal					Debit	Credit
	h.	cost of good sold					1,690,000
		Finished goods inventory						1,690,000
12)	Finished goods	Finished Goods
	Beg.bal	38,400
	g.	1,623,300	1,633,300	h.
	End bal	28,400
13)	Adjusted cost of goods sold				1,619,800
	(1,633,300-13500)
14)	Gross margin				1,927,700
	(sales - adjusted cost of goods sold)
15)	Net operating income				1,185,700	answer
	Gross margin			1,927,700
	less
	Selling & adm salaries			-319,000
	Various selling & adm			-423,000
	Net operating income			1,185,700