Bates Manufacturing uses a job order cost system,and overhead is applied on the basis of direct labor hours.At the beginning of the period,the company estimated that overhead would be $64,000 and 10,000 direct labor hours would be worked.Two projects were started and completed in the current accounting period.The following transactions were completed during the period:
(a)Used $10,000 of direct material on Project I and $6,800 of direct material on Project II.
(b)Labor costs for the two jobs amounted to the following: Project I,$24,000 (2,000 hours);Project II,$44,000 (6,000 hours).
(c)Project II was sold during the period for $120,000.
The company's gross margin for the period was: (Do not round your intermediate calculation. ):
A) $30,800.
B) $18,000.
C) $89,200.
D) $69,200.

Question

Bates Manufacturing uses a job order cost system,and overhead is applied on the basis of direct labor hours.At the beginning of the period,the company estimated that overhead would be $64,000 and 10,000 direct labor hours would be worked.Two projects were started and completed in the current accounting period.The following transactions were completed during the period: 
(a)Used $10,000 of direct material on Project I and $6,800 of direct material on Project II.
(b)Labor costs for the two jobs amounted to the following: Project I,$24,000 (2,000 hours);Project II,$44,000 (6,000 hours).
(c)Project II was sold during the period for $120,000.
The company's gross margin for the period was: (Do not round your intermediate calculation. ):
A) $30,800.
B) $18,000.
C) $89,200.
D) $69,200.

Quizplus · Accepted Answer

The total cost for Project II is calculated as direct materials ($6,800) + direct labor ($44,000) + applied overhead ($64,000/10,000 hours * 6,000 hours = $38,400) = $89,200. The gross margin is the sales price ($120,000) minus the total cost ($89,200), resulting in a gross margin of $30,800.

Bates Manufacturing Uses a Job Order Cost System,and Overhead Is