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 $120,400 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:

Purchase of raw materials	$	138,000
Direct labor cost	$	82,000
Manufacturing overhead costs:
Indirect labor	$	136,500
Property taxes	$	8,400
Depreciation of equipment	$	16,000
Maintenance	$	14,000
Insurance	$	7,600
Rent, building	$	31,000

	Beginning		Ending
Raw Materials	$	22,000	$	11,000
Work in Process	$	45,000	$	37,000
Finished Goods	$	74,000	$	59,000

1.) Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

Answer 1

Estimated manufacturing overhead = $120,400

Estimated direct material used = $86,000

Predetermined overhead rate = Estimated manufacturing overhead/Estimated direct material used

= 120,400/86,000

= $1.4 per direct material

Actual direct material used = $149,000

Actual manufacturing overhead = Actual direct material used x Predetermined overhead rate

= 149,000 x 1.4

= $208,600

Statement of cost of goods manufactured

Raw material, beginning	22,000
Purchase of raw material	138,000
Total raw material available	160,000
Raw material, ending	-11,000
Direct material used	149,000
Direct labor cost	82,000
Manufacturing overhead applied	208,600
Total manufacturing cost	439,600
Work in process, beginning	45,000
Work in process, ending	-37,000
Cost of goods manufactured	$447,600

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