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 $100,800 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: $ 132,000 $ 80,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ $ $ $ $ $ 91,000 8,000 18,000 12,000 7,600 37,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 26,000 $ 17,000 $ 49,000 $ 37,000 $ 71,000 $ 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 $37,000 ending balance in Work in Process includes $8,800 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) Predetermine overhead rate = 100800/84000 = 120% of direct material used

2) Overhead applied = (26000+132000-17000)*1.2 = 169200

Actual overhead = 173600

Under applied overhead = 173600-169200 = 4400

3) Schedule of cost of goods manufactured

Direct material
Beginning raw material	26000
Raw material purchase	132000
Raw material available for use	158000
Less; Ending raw material	-17000
Material used		141000
Direct labor		80000
Manufacturing overhead		169200
Total manufacturing cost		390200
Beginning work in process		49000
Total cost of work in process		439200
Less: Ending work in process		-37000
Cost of goods manufactured		402200

4) Unadjusted cost of goods sold = 71000+402200-56000 = 417200

5) Calculate following

Direct material	8800
Direct labor	17640
Manufacturing overhead (8800*1.2)	10560
Ending work in process	37000