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 $127,400 of manufacturing overhead for an estimated allocation base of $91,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: Purchase of raw materials $ 133,000 Direct labor cost $ 87,000 Manufacturing overhead costs: Indirect labor $ 131,100 Property taxes $ 8,700 Depreciation of equipment $ 18,000 Maintenance $ 12,000 Insurance $ 9,200 Rent, building $ 35,000 Beginning Ending Raw Materials $ 28,000 $ 11,000 Work in Process $ 44,000 $ 37,000 Finished Goods $ 72,000 $ 59,000 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 $37,000 ending balance in Work in Process includes $8,000 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Solution 1:
Predetermined overhead rate
Estimated Manufacturing overhead	127400
/Estimated direct material used	91000
Predetermined overhead rate	140%
Solution 2:
Dierct materials used
Raw Material, Beginning	$28,000
Add: Purchase of Raw Material	$1,33,000
Less: Raw Material, Ending	$11,000
Direct material used in production	$1,50,000
Underapplied or overapplied overhead
Applied overhead ($150000*140%)		$2,10,000
Actual Overhead:
Indirect labor	131100
Property taxes	8700
Depreciation of Equipment	18000
Maintenance	12000
Insurance	9200
Rent Building	35000
Total Actual Overhead costs		$2,14,000
Under applied Overhead		$4,000

Solution 3:
Gitano Products
Schedule of cost of goods manufactured
Direct Material:
Raw Material, Beginning	$28,000
Add: Purchase of Raw Material	$1,33,000
Total Raw material available	$1,61,000
Less: Raw Material, Ending	$11,000
Raw material used in production		$1,50,000
Direct Labor cost		$87,000
Applied Manufacturing Overhead		$2,10,000
Total Manufacturing Costs		$4,47,000
Add: Work in Process, Beginning		$44,000
Subtotal		$4,91,000
Less: Work in Process, Ending		$37,000
Cost of goods manufactured		$4,54,000

Solution 4:
Gitano Products
Computation of Unadjusted cost of goods sold
Cost of goods manufactured	$4,54,000
Add: Finished Goods, Beginning	$72,000
Total Goods available for sale	$5,26,000
Less: Finished Goods, Ending	$59,000
Unadjusted Cost of goods Sold	$4,67,000

Solution 5:
Direct materials	8000
Manufacturing overhead (8000*140%)	11200
Direct Labor (37000- 8000- 11200)	17800
Total ending balance in Work in Process	37000