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 $117,000 of manufacturing overhead for an estimated allocation base of $90,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: $ 136,000 $ 86,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 113,200 $ 8,100 $ 17.000 $ 15.000 $ 8.500 $ 35.000 Raw Materials Work in Process Finished Goods Beginning Ending $ 25,000 $12.000 $ 48,000 $36,000 $ 69,000 $ 57,000 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 $36,000 ending balance in Work in Process includes $9,000 of direct materials. Given this assumption, supply the Information missing below:

Answer 1

Solution: 1 Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total amount of the allocation base Predetermined overhead rate = ($117,000/ $90,000) 100 = 130% 2 Actual overhead costs = $113,200 + $8,100 + $17,000+ $15,000 + $8,500 + $35,000 = $196,800 Direct materials used = $25,000+ $136,000 - $12,000 = $149,000 Applied overhead costs = $149,000 x 130% = $193,700 Under-applied overhead cost = $196,800 - $193,700 = $3,100. Gitano Products Schedule of cost of goods manufactured Direct materials: Beginning raw materials inventory $ 25,000 Add: Purchases of raw materials $ 136,000 Total raw materials available $ 161,000 Less: Ending raw materials inventory $ 12,000 Raw materials used in production Direct labor Manufacturing overhead applied to work in process Total manufacturing cost Add: Beginning work in process inventory Sub total Less: Ending work in process inventory Cost of goods manufactured $149,000 $ 86,000 $ 193,700 $ 428,700 $ 48,000 $476,700 $ 36,000 $ 440,700 4 Unadjusted cost of goods sold: Beginning finished goods inventory Add: Cost of goods manufactured Cost of goods available for sale Deduct: Ending finished goods inventory Unadjusted cost of goods sold $ 69,000 $440,700 $509,700 $ 57,000 $ 452,700 5 The amount of overhead cost in Work in Process was: $9,000 direct materials cost x 130% = $11,700 Direct labor = overhead cost in Work in Process - direct materials - manufacturing overhead Direct labor = $36,000 - $9,000 - $11,700 = $15,300. Direct materials Direct labor Manufacturing overhead Work in process inventory $ 9,000 $ 15,300 $ 11,700 $36,000