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: $ 140,000 $ 84,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 117,000 $ 8,200 $ 18,000 $ 13,000 $ 7,200 $ 31,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 23,000 $ 16,000 $ 49,000 $ 38,000 $ 68,000 $ 62,000 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 $38,000 ending balance in Work in Process includes $8,800 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Required 1 :
Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct materials costs = 114400 / 88000	130%

Required 2 :
Beginning raw materials	23000
(+) Purchase of raw materials	140000
Total raw materials available	163000
(-) Ending raw materials	16000
Raw materials used	147000
Overhead applied = Raw materials used * Predetermined overhead rate = 147000 * 130%	191100

Indirect labor	117000
Property taxes	8200
Depreciation of equipment	18000
Maintenance	13000
Insurance	7200
Rent, building	31000
Actual overhead costs	194400
As the overhead applied are less than the actual overhead costs, the overheads are underapplied
Underapplied overhead = Actual overhead costs - Overhead applied = 194400 - 191100	3300

Underapplied

Overhead

3300

Required 3 :
Gitano Products
Schedule of cost of goods manufactured
Direct materials :
Beginning raw materials	23000
Purchase of raw materials	140000
Total raw materials available	163000
Ending raw materials	16000
Raw materials used in production		147000
Direct labor cost		84000
Manufacturing overhead applied		191100
Total manufacturing costs		422100
Beginning work in process		49000
Total cost of work in process		471100
Ending work in process		38000
Cost of goods manufactured		433100

Required 4 :
Cost of goods manufactured	433100
(+) Beginning finished goods	68000
(-) Ending finished goods	62000
Unadjusted cost of goods sold	439100

Required 5 :
Direct materials	8800
Direct labor cost ( 38000 - 8800 - 11440 )	17760
Manufacturing overhead ( 8800 * 130% )	11440
Work in process inventory	38000