Question

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.

Answer 1

The firm's accounting profit is calculated by subtracting the total costs from the sales revenue. After spending $950,000 on labor, capital, and materials from a sales revenue of $1 million, the firm's accounting profit for the year was $50,000.

Step-by-step explanation:

To calculate the accounting profit for a firm, we need to subtract the total costs from the sales revenues. In this example, the firm had sales revenue of $1 million last year. The costs incurred by the firm were $600,000 on labor, $150,000 on capital, and $200,000 on materials.

The accounting profit can be calculated as follows:

Total Sales Revenue: $1,000,000

Total Costs: Labor ($600,000) + Capital ($150,000) + Materials ($200,000) = $950,000

Accounting Profit: Total Sales Revenue - Total Costs = $1,000,000 - $950,000 = $50,000

Therefore, the firm's accounting profit for the year was $50,000.