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 $114,400 of manufacturing overhead for an estimated allocation base of $88,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	131,000
Direct labor cost	$	84,000
Manufacturing overhead costs:
Indirect labor	$	109,300
Property taxes	$	8,800
Depreciation of equipment	$	17,000
Maintenance	$	14,000
Insurance	$	9,200
Rent, building	$	31,000

	Beginning		Ending
Raw Materials	$	25,000	$	14,000
Work in Process	$	46,000	$	39,000
Finished Goods	$	69,000	$	59,000

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.

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 $39,000 ending balance in Work in Process includes $8,700 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1)	Predetermined OH rate =			Estimated Manu. OH / Estimated Direct Materials Dollar
			=	$ 114400 / $ 88000
			=	1.3	times per Direct Material Dollar

2)	Actual OH
	Indirect labor			$ 109,300.00
	Property taxes			$     8,800.00
	Depreciation of equipment			$   17,000.00
	Maintenance			$   14,000.00
	Insurance			$     9,200.00
	Rent, building			$   31,000.00
				$ 189,300.00
	Applied OH		=	Direct Material used x 1.3
			=	$ 142000 x 1.3
			=	$ 184,600.00
	Underapplied OH		=	$ 189300 - $ 184600
			=	$     4,700.00

Workings:
Computation of Direct Materials used
Direct Material Used =			Beginning R.M + Purchase of R.M - Ending R.M
		=	$ 25000 + $ 131000 - $ 14000
		=	$ 142,000.00

3)	Cost of Goods Manufactured Schedule
	Beginning WIP				$   46,000.00
	Direct Material Used			$ 142,000.00
	Direct Labor			$   84,000.00
	Manufacturing OH applied			$ 184,600.00
	Total Manufacturing Cost				$ 410,600.00
	Total Cost of WIP				$ 456,600.00
Less:	Ending WIP				$ (39,000.00)
	Cost of Goods Manufactured				$ 417,600.00

4)	Unadjusted Cost of Goods sold =			Beginning Finished Goods + Cost of Goods Manu. - Ending Finished Goods
			=	$ 69000 + $ 417600 - $ 59000
			=	$ 427,600.00