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: $ 139,000 $ 86,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent building $ 104,100 $ 8,400 $ 18,000 $ 13,000 $ 11,800 $ 38,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 25,000 $ 18,000 $ 46.000 $ 35,000 $ 75,000 $ 60,000 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 $35,000 ending balance in Work in Process includes $8,100 of direct materials. Given this assumption, supply the information missing below: Alaala

Answer 1

1)Overhead rate =Estimated overhead cost /estimated direct material cost

                = 117000/90000

                  = 1.30 or 130% of direct material cost

2)

Total of all actual overhead cost :104100+8400+18000+13000+11800+38000=193300

Raw material used :Beginning raw material + purchase -ending raw material balance

                 = 25000+139000-18000

                  = 146000

Overhead applied =Actual raw material used* overhead rate

                  = 146000*130%

                    = 189800

Overhead under-applied/ (Over-applied) =Actual overhead- applied overhead

                              =193300-189800

                             = 3500

3)

SCHEDULE OF COST OF GOODS MANUFACTURED
Beginning raw material inventory	25000
Add:raw material purchased	139000
Raw material available for use	164000
less:ending raw material inventory	-18000
Raw material used	146000
Direct labor cost	86000
Overhead applied	189800
Total manufacturing cost incurred	421800
Add:beginning work in process	46000
	467800
less:ending work in process	-35000
cost of goods manufactured	432800

4)

Cost of goods sold (un-adjusted ) =Beginning finished goods inventory +cost of goods manufactured- ending finished goods inventory

        = 75000+432800 -60000

          = 447800

5)

Direct material	8100
Direct labor (residual value)	16370
overhead applied (8100*130%)	10530
work in process	35000

#35000-8100-10530