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   $   72,500
Work in process   $   18,200
Finished goods   $   46,500

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 $15.50 per direct labor-hour was based on a cost formula that estimated $620,000 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, $628,000.
Raw materials use in production, $598,000. All of of the raw materials were used as direct materials.
The following costs were accrued for employee services: direct labor, $570,000; indirect labor, $150,000; selling and administrative salaries, $266,000.
Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $418,000.
Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $470,000.
Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year.
Jobs costing $1,717,900 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 $3,225,000. The jobs cost $1,727,900 to manufacture according to their job cost sheets.

1. What is the journal entry to record raw materials used in production? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
2. What is the ending balance in Raw Materials?
3. What is the journal entry to record the labor costs incurred during the year? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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					598,000
		Raw materials inventory						598,000
2)	Ending balance in Raw Materials
	Raw materials
	Beg.bal	72,500
	a.	628,000	598,000	b.
	End bal	102,500
3)	Transaction	General Journal					Debit	Credit
	c.	Work in process inventory					570,000
		Manufacturing overhead					150,000
		Selling & administrative salaries					266,000
		Factory wages payable						986,000
4)	Manufacturing overhead applied ($11.75*41,000 DLH's)			(41000*15.5)			635500	answer
5)	Total manufacturing cost added during the year
	Direct materials				598,000
	Direct labor				570,000
	overhead applied				635,500
	Total.				1,803,500
	total manufacturing cost				1,803,500	answer
6)	Transaction	General Journal					Debit	Credit
	g.	Finished goods inventory					1,717,900
		Work in process inventory						1,717,900
7)	Work in process
	Beg.bal	18,200	1,717,900	g.
	b.	598,000
	c.	570,000
	f.	635,500
	End bal	103,800
8)	total actual manufacturing overhead cost					620,000	answer
	indirect labor			150000
	Various manfuacturing cost			470,000
	total			620000
9)	overapplied overhead			15,500	answer
10)	Cost of goods available for sale				1,764,400	answer
	(46,500+1,717,900)
11)	Transaction	General Journal					Debit	Credit
	h.	cost of good sold					1,727,900
		Finished goods inventory						1,727,900
12)	Finished goods	Finished Goods
	Beg.bal	46,500
	g.	1,717,900	1,727,900	h.
	End bal	36,500
13)	Adjusted cost of goods sold				1,712,400
	(1,727,900-15,500)
14)	Gross margin				1,512,600
	(sales - adjusted cost of goods sold)
15)	Net operating income				828,600	answer
	Gross margin			1,512,600
	less
	Selling & adm salaries			-266,000
	Various selling & adm			-418,000
	Net operating income			828,600