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 $102,000 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: $ 132,000 $ 81,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ $ $ $ $ $ 94,900 8,400 18,000 13,000 11,600 31,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 25,000 $ 13,000 $ 46,000 $ 40,000 $ 72,000 $ 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 $40,000 ending balance in Work in Process includes $8,500 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Gitano Products
	Predetermined Overhead Rate=Estimated Total Manufacturing Overhead/Estimated total amount of allocation base
1)	Estimated Total Manufacturing Overhead=(A)	$         1,02,000.00
	Estimated Direct Material Cost=(B)	$            85,000.00
	Predetermined Overhead Rate=(A)/(B)	120%
2)	Actual Manufacturing Overhead Cost
	Indirect Labor	$            94,900.00
	Property Tax	$               8,400.00
	Depreciation on Equipment	$            18,000.00
	Maintenance	$            13,000.00
	Insurance	$            11,600.00
	Rent-Building	$            31,000.00
	Total Actual Cost	$         1,76,900.00
	Direct Material used in Production
	Beginning Raw Material	$            25,000.00
	Add: Purchases	$         1,32,000.00
	Direct Material available	$         1,57,000.00
	Less: Ending Raw Material	$           -13,000.00
	Raw Material used in Production	$         1,44,000.00
	Applied Manufacturing Overhead=Total actual manufacturing cost-(Raw Material used in production*Predetermined overhead rate)
	Actual Manufacturing Overhead	$         1,76,900.00
	Applied Overhead=($144000*120%)	$         1,72,800.00
	Overhead Under applied($176900-$172800)	$               4,100.00
	Applied Overhead< Actual Overhead=Under applied Overhead overhead
	Gitano Products
3)	Cost of Goods manufactured
			Amount
	Direct Material
	Beginning Raw Material Inventory	$            25,000.00
	Add: Purchases	$         1,32,000.00
	Total raw material available	$         1,57,000.00
	Less: Ending Raw Material	$           -13,000.00
	Raw Material used in Production		$   1,44,000.00
	Direct Labor		$       81,000.00
	Manufacturing Overhead applied to WIP		$   1,72,800.00
	Total Manufacturing Costs		$   3,97,800.00
	Add: Beginning WIP Inventory		$       46,000.00
			$   4,43,800.00
	Less: Ending WIP Inventory		$     -40,000.00
	Cost of goods manufactured		$   4,03,800.00
	Gitano Products
4)	Cost of goods sold
		Amount
	Beginning Finished goods Inventory=(A)	$            72,000.00
	Add: Cost of goods manufactured=(B)	$         4,03,800.00
	Cost of goods available for sale(C)=(A)+(B)	$         4,75,800.00
	Less: Ending Finished goods Inventory=(D)	$           -59,000.00	$   4,16,800.00
5)	Direct Material	$               8,500.00
	Direct Labor($40000-$8500-$10200)	$            21,300.00
	Overhead Applied($8500*120%)	$            10,200.00
	Work in Process Inventory	$            40,000.00