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 $127,500 of manufacturing overhead for an estimated allocation base of $85,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	136,000
Direct labor cost	$	81,000
Manufacturing overhead costs:
Indirect labor	$	144,900
Property taxes	$	8,700
Depreciation of equipment	$	16,000
Maintenance	$	15,000
Insurance	$	9,100
Rent, building	$	32,000

	Beginning		Ending
Raw Materials	$	29,000	$	17,000
Work in Process	$	50,000	$	38,000
Finished Goods	$	74,000	$	58,000

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 $8,600 of direct materials. Given this assumption, supply the information missing below:

Required 1 Required 2 Required 3 Required 4 Required 5 Compute the predetermined overhead rate for the year. Predetermined overhead rate Required 1 Required 2 Required 3 Required 4 Required 5 Compute the amount of underapplied or overapplied overhead for the year. overhead Required 1 Required 2 Required 3 Required 4 Required 5 Prepare a schedule of cost of goods manufactured for the year. Assume all raw materia materials. Gitano Products Schedule of Cost of Goods Manufactured Direct materials: Total raw materials available Raw materials used in production Total manufacturing costs Cost of goods manufactured Required 1 Required 2 Required 3 Required 4 Required 5 Compute the unadjusted cost of goods sold for the year. Do not include any underapplied or overapplied overhead in your answer. Unadjusted cost of goods sold Required 1 Required 2 Required 3 Required 4 Required 5 Assume that the $38,000 ending balance in Work in Process includes $8,600 of direct materials. Given this assumption, supply the information missing below: Direct materials Direct labor Manufacturing overhead Work in process inventory $

Answer 1

1) Predetermined overhead rate = $127,500 / $85,000 = 150% of direct material used

2). Direct materials used = Beginning + Purchase - Ending
= $29,000 + $136,000 - $17,000 = $148,000

Applied overhead = $148,000 * 150% = $222,000

Actual overhead = $144,900 + $8,700 + $16,000 + $15,000 + $9,100 + $32,000 = $225,700

Under-applied overhead = $225,700 - $222,000 = $3,700

3).

Schedule of Cost of Goods Manufactured Direct Materials: Beginning Inventory Purchases of Raw material Total Material Available Less: Ending Inventory Raw Material used in Production Direct labor Manufacturing overhead Total Manufacturing cost Add: Beginning Work in process 29,000.00 1,36,000.00 1,65,000.00 17,000.00 $ $ $ $ $ $ $ 1,48,000.00 81,000.00 2,22,000.00 4,51,000.00 50,000.00 5,01,000.00 38,000.00 4,63,000.00 Less: Ending Work in process Cost of goods manufactured

4). Unadjusted cost of goods sold = Beginning Finished goods + Cost of goods manufactured - Ending Finished goods
= $74,000 + $463,000 - $58,000 = $479,000

5). Direct materials used = Beginning + Purchase - Ending
= $29,000 + $136,000 - ($17,000 + $8,600) = $139,400

Direct labor = $81,000

Manufacturing overhead = $139,400 * 150% = $209,100

Work in process inventory = $38,000 - $8,600 = $29,400