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 $117,600 of manufacturing overhead for an estimated allocation base of $84,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: $ 138,000 $ 80,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building HAHAHAHAHAHA $ 133,400 8,400 $ 15,000 15,000 $ 7,000 $ 32,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 24,000 $ 15,000 $ 47,000 $ 40,000 $ 74,000 $ 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 $40,000 ending balance in Work in Process includes $8,500 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) Predetermine overhead rate = 117600/84000 = 140% of direct material used

2) Applied overhead = (24000+138000-15000)*1.4 = 205800

Actual overhead = 210800

Under applied overhead = 205800-210800 = 5000

3) Schedule of cost of goods manufactured

Direct material
Beginning raw material	24000
Raw material purchase	138000
Raw material available for use	162000
Less: Ending raw material	-15000
Direct material used		147000
Direct labor		80000
Manufacturing overhead		205800
Total manufacturing cost		432800
Beginning work in process		47000
Total cost of work in process		479800
Less: Ending work in process		-40000
Cost of goods manufactured		439800

d) Unadjusted cost of goods sold = 74000+439800-57000 = 456800

e) Calculate following

Direct material	8500
Direct labor (40000-11900-8500)	19600
Overhead (8500*1.4)	11900
Ending WIP	40000