Bunnell Corporation is a manufacturer that uses job-order costing. On January 1,

Question

Bunnell Corporation is a manufacturer that uses job-order costing. On January 1, the company’s inventory balances were as follows:

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:

Raw materials were purchased on account, $510,000.

Raw materials use in production, $480,000. All of of the raw materials were used as direct materials.

The following costs were accrued for employee services: direct labor, $600,000; indirect labor, $150,000; selling and administrative salaries, $240,000.

Incurred various selling and administrative expenses (e.g., advertising, sales travel costs, and finished goods warehousing), $367,000.

Incurred various manufacturing overhead costs (e.g., depreciation, insurance, and utilities), $500,000.

Manufacturing overhead cost was applied to production. The company actually worked 41,000 direct labor-hours on all jobs during the year.

Jobs costing $1,680,000 to manufacture according to their job cost sheets were completed during the year.

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.

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

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

Explanation / Answer

Solution:

Manufacturing overhead incurred = Indirect labor + Other manufacturing overhead

= $150,000 + $500,000 = $650,000

Manufacturing overhead applied = 41000 * $16.25 = $666,250

Overapplied overhead = $666,250 - $650,000 = $16,250

Overapplied overhead to be closed in cost of goods sold

Therefore cost of goods sold after closing of overapplied overhead = $1,690,000 - $16,250 = $1,673,750

Computation of Net Operating Income Particulars Amount Sales Revenue $2,800,000.00 Cost of goods sold $1,673,750.00 Gross Profit $1,126,250.00 Selling and administrative salaries $240,000.00 Other Selling and administrative expenses $367,000.00 Net Operating income $519,250.00

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