Question

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?

Bunnell Corporation is a manufacturer that uses job-order costing. On January 1, the company's inventory balances were as follows: Raw materials Work in process Finished goods $ 79,000 $ 25,600 $ 37,200 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 $12.25 per direct labor-hour was based on a cost formula that estimated $490,000 of total manufacturing overhead for an estimated activity level of 40,000 direct labor-hours. The following transactions were recorded for the year: a. Raw materials were purchased on account, $690,000. b. Raw materials used in production, $660,000. All of of the raw materials were used as direct materials. c. The following costs were accrued for employee services: direct labor, $440,000; indirect labor, $150,000; selling and administrative salaries, $260,000. d. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $462,000. e. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $340,000. f. Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year. g. Jobs costing $1,542,950 to manufacture according to their job cost sheets were completed during the year. h. Jobs were sold on account to customers during the year for a total of $3,172,500. The jobs cost $1,552,950 to manufacture according to their job cost sheets.

14. What is the gross margin for the year?

15. What is the net operating income for the year?

Answer 1

13. Actual overhead $490,000

Applied overhead 41000*12.25 = $502,250

Over applied overhead = $12,250

Adjusted cost of goods sold =$1,552,950 - $12,250 = $1,540,700

14. Gross profit =$3,172,500 - $1,540,700 = $1,631,800

15. Net operating income =$1,631,800 - $260,000-$462,000 =$909,800