Question

A company produces fine cabinets. The company uses a job-order costing system in which its predetermined overhead rate is based on capacity. The capacity of the factory is determined by the capacity of its constraint, which is an automated jointer. Additional information is provided below for the most recent month: $16,120 310 hours Estimates at the beginning of the month: Estimated total fixed manufacturing overhead Capacity of the jointer Actual results: Sales Direct materials Direct labor Actual total fixed manufacturing overhead Selling and administrative expense Actual hours of jointer use $60,800 $16,600 $14,600 $16,120 $10,900 270 hours The gross margin that would be reported on the income statement prepared for internal management purposes would be closest to:

Answer 1

Answer - $ 15,560 Gross margin to be reported in income statement Sales $ 60,800 Less: COGST -Direct material $ -16,600 - Direct labour $ -14,600 -Overhead applied $ -14,040 Note Gross margin $ 15,560 Overhead applied Predetermined overhead rate= estimated overhead/estimated activity level Predetermined overhead rate = 16120/310 Predetermined overhead rate = 52 Manufacturing overhead applied = Actual hours* Predetermined overhead rate Manufacturing overhead applied = 270*52 Manufacturing overhead applied = 14040