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 $122,200 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:

Purchase of raw materials	$	136,000
Direct labor cost	$	90,000
Manufacturing overhead costs:
Indirect labor	$	119,700
Property taxes	$	8,900
Depreciation of equipment	$	16,000
Maintenance	$	12,000
Insurance	$	7,200
Rent, building	$	33,000

	Beginning		Ending
Raw Materials	$	26,000	$	14,000
Work in Process	$	48,000	$	38,000
Finished Goods	$	70,000	$	61,000

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 $8,900 of direct materials. Given this assumption, supply the information missing below:

Answer 1

solution : 1 | Estimated manufacturing overhead cost / Estimated direct material cost Predetermined overhead rate 122,200 94,000 130% 21 Direct materials used in production: Raw materials inventory, beginning Add: Purchases of raw materials Raw materials available Deduct: Raw materials inventory, ending Raw materials used in production 26,000 136,000 162,000 14,000 148,000 Actual manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building Total actual costs Applied manufacturing overhead costs (148000* 130%) underrapplied overhead 119,700 8,900 16,000 12,000 7,200 33,000 196, 800 192,400 4,400

GI TANO PRODUCTS Schedule of Cost of Goods Manufactured 26.000 136,000 162,000 14,000 Direct materials: Raw materials inventory, beginning Add purchases of raw materials Total raw materials available Deduct raw materials inventory, ending Raw materials used in production Direct labor Manufacturing overhead applied to work in process Total manufacturing costs Add: Work in process, beginning 148,000 90,000 192,400 430,400 48,000 478,400 38,000 440,400 Deduct: Work in process, ending Cost of goods manufactured 4 Unadjusted Cost of goods sold : Finished goods inventory, beginning Add: Cost of goods manufactured Goods available for sale Deduct: Finished goods inventory, ending Unadjusted Cost of goods sold 70,000 440,400 510,400 61,000 449,400 5 Direct materials Direct labor (38000-8900-11570) Overhead applied (8900*130%) Work in process inventory 8,900 17.530 11,570 38,000