Question

Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct materials used in production (not on the basis of raw materials purchased). Its predetermined overhead rate was based on a cost formula that estimated $117,000 of manufacturing overhead for an estimated allocation base of $90,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	137,000
Direct labor cost	$	86,000
Manufacturing overhead costs:
Indirect labor	$	114,400
Property taxes	$	8,700
Depreciation of equipment	$	20,000
Maintenance	$	12,000
Insurance	$	9,100
Rent, building	$	33,000

	Beginning		Ending
Raw Materials	$	22,000	$	10,000
Work in Process	$	46,000	$	37,000
Finished Goods	$	72,000	$	57,000

Required:

1. Compute the predetermined overhead rate for the year.

2. Compute the amount of underapplied or overapplied overhead for the year.

3. Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

	Gitano Products Schedule of Cost of Goods Manufactured Direct materials: Total raw materials available Raw materials used in production Total manufacturing costs 0 Cost of goods manufactured

4. Compute the unadjusted cost of goods sold for the year. Do not include any underapplied or overapplied overhead in your answer.

5. Assume that the $37,000 ending balance in Work in Process includes $8,500 of direct materials. Given this assumption, supply the information missing below:

Assume that the $37,000 ending balance in Work in Process includes $8,500 of direct materials. Given this assumption, supply the information missing below:

	Direct materials Direct labor Manufacturing overhead Work in process inventory $0

Answer 1

1.
Overhead rate = $117000 / 90000 = 130% of direct material

2.
Direct material used = $22000 + 137000 - 10000 = $149000
Overhead applied = $149000 x 130% = $193,700
Actual Overhead = $114400+8700+20000+12000+9100+33000 = $197200
Since Actual overhead is higher than overhead applied, overhead is under-applied

Under-applied Overhead = $197200 - 193700 = $3500

3.

Schedule of Cost of Goods manufactured
Direct Materials
Raw Material, Beginning Inventory	$        22,000
Add: Purchases	$      137,000
Total Raw Material Available	$      159,000
Deduct : Raw Material in inventory, ending	$        10,000
Raw Material used in production		$      149,000
Direct Labor		$        86,000
Manufacturing Overhead Applied		$      193,700
Total Manufacturing Costs		$      428,700
Add: Beginning Work in Process Inventory		$        46,000
		$      474,700
Deduct: Ending Work in Process Inventory		$        37,000
Cost of Goods Manufactured		$     437,700

4.

Schedule of Cost of Goods Sold
Finished Goods Inventory, Beginning		$        72,000
Add: Cost of Goods Manufactured		$      437,700
Cost of Goods Available for sale		$      509,700
Deduct : Finished Goods Inventory, Ending		$        57,000
Unadjusted Cost of goods sold		$     452,700

5.
Direct Material = $8500
Manufacturing Overhead = $8500 x 130% = $11050
Direct Labor = $37000 - 8500 - 11050 = $17450
Work in Process Inventory = $37000

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