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 $133,500 of manufacturing overhead for an estimated allocation base of $89,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: $ 132,000 $ 85,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 142,500 $ 8,700 18,000 $ 16,000 $ 7,300 $ 37,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 28,000 $ 10,000 $ 46,000 $ 38,000 $ 70,000 $ 60,000 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 $8,100 of direct materials. Given this assumption, supply the information missing below: Complete this question by entering your answers in the tabs below.

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 $8,100 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Required 1 :
Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct materials costs = 133500 / 89000	150%

Required 2 :
Beginning raw materials	28000
(+) Purchase of raw materials	132000
Total raw materials available	160000
(-) Ending raw materials	10000
Raw materials used	150000
Overhead applied = Raw materials used * Predetermined overhead rate = 150000 * 150%	225000
Indirect labor	142500
Property taxes	8700
Depreciation of equipment	18000
Maintenance	16000
Insurance	7300
Rent, building	37000
Actual overhead costs	229500
As the overhead applied are less than the actual overhead costs, the overheads are underapplied
Underapplied overhead = Actual overhead costs - Overhead applied = 229500 - 225000	4500

Underapplied

Overhead

4500

Required 3 :
Gitano Products
Schedule of cost of goods manufactured
Direct materials :
Beginning raw materials	28000
Purchase of raw materials	132000
Total raw materials available	160000
Ending raw materials	10000
Raw materials used in production		150000
Direct labor cost		85000
Manufacturing overhead applied		225000
Total manufacturing costs		460000
Beginning work in process		46000
Total cost of work in process		506000
Ending work in process		38000
Cost of goods manufactured		468000

Required 4 :
Cost of goods manufactured	468000
(+) Beginning finished goods	70000
(-) Ending finished goods	60000
Unadjusted cost of goods sold	478000

Required 5 :
Direct materials	8100
Direct labor cost ( 38000 - 8100 - 12150 )	17750
Manufacturing overhead ( 8100 * 150% )	12150
Work in process inventory	38000