Question

Required information

The Foundational 15 [LO3-1, LO3-2, LO3-3, LO3-4]

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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	$	40,000
Work in process	$	18,000
Finished goods	$	35,000

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 $16.25 per direct labor-hour was based on a cost formula that estimated $650,000 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, $510,000.
2. Raw materials used in production, $480,000. All of of the raw materials were used as direct materials.
3. The following costs were accrued for employee services: direct labor, $600,000; indirect labor, $150,000; selling and administrative salaries, $240,000.
4. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $367,000.
5. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $500,000.
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 $1,680,000 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 $2,800,000. The jobs cost $1,690,000 to manufacture according to their job cost sheets.

Foundational 3-14

14. What is the gross margin for the year?

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

Answer 1

Manufacturing overhead applied	666250	=41000*16.25
Actual manufacturing cost	650000	=150000+500000
Less: Manufacturing overhead applied	666250
Overapplied manufacturing overhead	16250
14
Sales revenue	2800000
Less: Adjusted Cost of goods sold	1673750	=1690000-16250
Gross margin for the year	1126250
15
Gross margin for the year	1126250
Less: Selling and administrative salaries	240000
Less: Selling and administrative expenses	367000
Net operating income for the year	519250