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 $119,000 of manufacturing overhead for an estimated allocation base of $85,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	134,000
Direct labor cost	$	81,000
Manufacturing overhead costs:
Indirect labor	$	129,500
Property taxes	$	8,700
Depreciation of equipment	$	19,000
Maintenance	$	15,000
Insurance	$	11,100
Rent, building	$	32,000

	Beginning		Ending
Raw Materials	$	30,000	$	13,000
Work in Process	$	48,000	$	38,000
Finished Goods	$	68,000	$	56,000

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 $38,000 ending balance in Work in Process includes $8,200 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1)	predetermined overhead rate
	Estimated manufacturing overhead/direct materials used
	119000/85000
	140.00%	answer
	Direct materials used
	Beginning raw materials				30,000
	Add purchase of raw materials				134,000
	Raw materials available for use				164,000
	less ending raw materials				13,000
	Direct materials used				151,000
	Applied overhead 151000*140%=					211400
	Actual manufacturing overhead
	Indirect labor				129,500
	property taxes				8,700
	Depreciation of Equipment				19,000
	Maintenance				15,000
	Insurance				11,100
	Rent,building				32,000
	total actual manufacturing overhead				215,300	215,300
2)	overhead under applied					3,900	answer
3)	Cost of goods manufactured
	Direct materials used
	Beginning raw materials				30,000
	Add purchase of raw materials				134,000
	Raw materials available for use				164,000
	less ending raw materials				13,000
	Direct materials used					151,000
	Add: Direct labor					81,000
	applied manufacturing overhead					211400
	total manufacturing cost					443,400
	Add:Beginning work in process					48,000
						491,400
	less Ending work in process					38,000
	Cost of goods manufactured for the year					453,400	answer
4)	Cost of goods sold
	beginning finished goods inventory					68,000
	Add cost of goods manufactured for the year					453,400
	cost of goods available for used					521,400
	less ending finished goods inventory					56,000
	unadjusted cost of goods sold					465,400	answer
5)	Direct materials					8,200
	Direct labor					18,320
	manufacturing overhead (140% 0f DM)					11480
	Work in process inventory					38,000