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 $141,000 of manufacturing overhead for an estimated allocation base of $94,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: $135,000 $ 90,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $143,300 $ 8,900 $ 17,000 $ 15,000 $ 7,500 $ 32,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 30,000 $ 18,000 $ 49,000 $ 37,000 $ 71,000 $ 57,000 Required: 1-a. Compute the predetermined overhead rate for the year. Predetermined overhead rate 150 % 1-b. Compute the amount of underapplied or overapplied overhead for the year. Underapplied overhead

Answer 1

Raw material used

= Beginning raw materials + Raw material purchases - Ending raw materials

= 30,000+135,000-18,000

= 147,000

Applied overhead = 147,000*150% = 220,500

Actual overhead = 143,300+8,900+17,000+15,000+7,500+32,000

= 223,700

Underapplied overhead 3,200