Question

A manufacturer uses job-order costing. On January 1, the company's inventory balances were as follow Raw materials Work in process Finished goods $50.500 $25,000 $38,100 The company applies overhead cost to jobs on the basis of direct labor-hours. For the current year, the company's predetermined overhead rate was based on a cost formula that estimated $470,000 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, $592,000. b. Raw materials used in production, $557,000. All of of the raw materials were used as direct materials. c. The following costs were accrued for employee services: direct labor, $442,000; indirect labor, $150,000; selling and administrative salaries, $295,000. d. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing) $381.000 e. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $320,000. 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 $1,399,450 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 $2,905,500. The jobs cost $1,409,000 to manufacture according to their job cost sheets. The company closes any over- or under-applied manufacturing overhead to Cost of Goods Sold. What is the gross margin for the year? (All answers are whole numbers -- unless specified otherwise. You should NOT include the $ sign or a comma. E.g., you should type 1000 for one thousand. Negative numbers should be added with a minus sign, e.g., -1000 for a decrease or loss of one thousand.) Gross margin = $

Answer 1

Overhead rate = 470000/40000 = 11.75 per MH

Applied overhead = 41000*11.75 = 481750

Actual overhead = 150000+320000 = 470000

Over applied overhead = 481750-470000 = 11750

Adjusted cost of goods sold = 1409000-11750 = 1397250

Gross profit = 2905500-1397250 = 1508250