[The following information applies to the questions displayed below.] Bunnell Co

Question

[The following information applies to the questions displayed below.]
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:
a. Raw materials were purchased on account, $510,000.
b. Raw materials use in production, $480,000. All of of the raw materials were used as direct materials.
c. The following costs were accrued for employee services: direct labor, $600,000; indirect labor,
$150,000; selling and administrative salaries, $240,000.
d. Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished
goods warehousing), $367,000.
e. Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $500,000.
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 $1,680,000 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 $2,800,000. The jobs cost
$1,690,000 to manufacture according to their job cost sheets.
Here is the homework question: 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?

Explanation / Answer

Applied overhead = 41000*16.25 = $666250

Actual overhead = 150000++500000 = $650000

Overapplied overhead = 666250-650000 = 16250

Adjusted cost of goods sold = Unadjusted cost of goods sold-Overapplied overhead

= 1690000-16250

Adjusted cost of goods sold = $1673750

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