Bates Manufacturing uses a job-order costing 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 intermediate calculation.)
A) $30,800.
B) $18,000.
C) $89,200.
D) $69,200.

Question

Quizplus · Accepted Answer

Gross margin = Sales - Cost of goods soldCost of goods sold = Direct material + Direct labor + OverheadOverhead = Applied overhead rate * Actual direct labor hoursApplied overhead rate = Estimated overhead / Estimated direct labor hours= 64,000 / 10,000= $6.40 per direct labor hourOverhead for Project I = 6.40 * 2,000 = $12,800Overhead for Project II = 6.40 * 6,000 = $38,400Cost of goods sold for Project I = 10,000 + 24,000 + 12,800 = $46,800Cost of goods sold for Project II = 6,800 + 44,000 + 38,400 = $89,200Gross margin = 120,000 - 89,200 = $30,800

Bates Manufacturing Uses a Job-Order Costing System,and Overhead Is Applied