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 $111,800 of manufacturing overhead for an estimated allocation base of $86,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: $ 133,000 $ 82,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 108,600 $ 8,800 $ 18,000 $ 14,000 $ 10,900 $ 30,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 23,000 $ 13,000 $ 50,000 $ 39,000 $ 72,000 $ 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 $39,000 ending balance in Work in Process includes $8,400 of direct materials. Given this assumption, supply the information missing below: Complete this question by entering your answers in the tabs below.

Answer 1

Required 1 :
Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct materials costs = 111800 / 86000	130%

Required 2 :
Beginning raw materials	23000
(+) Purchase of raw materials	133000
Total raw materials available	156000
(-) Ending raw materials	13000
Raw materials used	143000
Overhead applied = Raw materials used * Predetermined overhead rate = 143000 * 130%	185900
Indirect labor	108600
Property taxes	8800
Depreciation of equipment	18000
Maintenance	14000
Insurance	10900
Rent, building	30000
Actual overhead costs	190300
As the overhead applied are less than the actual overhead costs, the overheads are underapplied
Underapplied overhead = Actual overhead costs - Overhead applied = 190300 - 185900	4400

Underapplied

Overhead

4400

Required 3 :
Gitano Products
Schedule of cost of goods manufactured
Direct materials :
Beginning raw materials	23000
Purchase of raw materials	133000
Total raw materials available	156000
Ending raw materials	13000
Raw materials used in production		143000
Direct labor cost		82000
Manufacturing overhead applied		185900
Total manufacturing costs		410900
Beginning work in process		50000
Total cost of work in process		460900
Ending work in process		39000
Cost of goods manufactured		421900

Required 4 :
Cost of goods manufactured	421900
(+) Beginning finished goods	72000
(-) Ending finished goods	58000
Unadjusted cost of goods sold	435900

Required 5 :
Direct materials	8400
Direct labor cost ( 39000 - 8400 - 10920 )	19680
Manufacturing overhead ( 8400 * 130% )	10920
Work in process inventory	39000