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 $118,300 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: $ 139,000 $ 87,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 114,900 $ 8,400 $ 16,000 $ 15,000 $ 10,100 $ 31,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 25,000 $ 17,000 $ 44,000 $ 38,000 $ 75,000 $ 62,000 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 $8,400 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) Predetermine overhead rate = 118300/91000 = 130% of material used

2) Applied overhead = (25000+139000-17000)*1.30 = 191100

Actual overhead = 195400

Under applied overhead = 195400-191100 = 4300

3) Schedule of cost of goods manufactured

Direct material used
Beginning raw material	25000
Raw material purchase	139000
Raw material available for use	164000
Less: Ending raw material	-17000
Direct material used		147000
Direct labor		87000
Manufacturing overhead		191100
Total manufacturing cost		425100
Beginning work in process		44000
Total cost of work in process		469100
Less: Ending work in process		-38000
Cost of goods manufactured		431100

4) Unadjusted cost of goods sold = 75000+431100-62000 = 444100

5) Calculate following

Ending WIP	38000
Direct material	8400
Applied overhead (8400*1.3)	10920
Direct labor (38000-8400-10920)	18680