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 $130,200 of manufacturing overhead for an estimated allocation base of $93,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: $ 136,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance 24 89,000 $ 131,000 24 8,800 16,000 24 13,000 24 Insurance 9,200 Rent, building 24 38,000 Ending Beginning $ 26,000 $ 11,000 $ 47,000 $ 38,000 $ 73,000 $ 55,000 Raw Materials Work in Process Finished Goods

Answer 1

Required 1 :
Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct materials costs = 130200 / 93000	140%

Required 2 :
Beginning raw materials	26000
(+) Purchase of raw materials	136000
Total raw materials available	162000
(-) Ending raw materials	11000
Raw materials used	151000
Overhead applied = Raw materials used * Predetermined overhead rate = 151000 * 140%	211400
Indirect labor	131000
Property taxes	8800
Depreciation of equipment	16000
Maintenance	13000
Insurance	9200
Rent, building	38000
Actual overhead costs	216000
As the overhead applied are less than the actual overhead costs, the overheads are underapplied
Underapplied overhead = Actual overhead costs - Overhead applied = 216000 - 211400	4600

Underapplied

Overhead

4600

Required 3 :
Gitano Products
Schedule of cost of goods manufactured
Direct materials :
Beginning raw materials	26000
Purchase of raw materials	136000
Total raw materials available	162000
Ending raw materials	11000
Raw materials used in production		151000
Direct labor cost		89000
Manufacturing overhead applied		211400
Total manufacturing costs		451400
Beginning work in process		47000
Total cost of work in process		498400
Ending work in process		38000
Cost of goods manufactured		460400

Required 4 :
Cost of goods manufactured	460400
(+) Beginning finished goods	73000
(-) Ending finished goods	55000
Unadjusted cost of goods sold	478400

Required 5 :
Direct materials	8700
Direct labor cost ( 38000 - 8700 - 12180 )	17120
Manufacturing overhead ( 8700 * 140% )	12180
Work in process inventory	38000