Question

Gitgo 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 $113,100 of manufacturing overhead for an estimated allocation base of $87,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	131,000
Direct labor cost	$	83,000
Manufacturing overhead costs:
Indirect labor	$	108,800
Property taxes	$	8,600
Depreciation of equipment	$	19,000
Maintenance	$	12,000
Insurance	$	10,100
Rent, building	$	36,000

	Beginning		Ending
Raw Materials	$	27,000	$	11,000
Work in Process	$	49,000	$	40,000
Finished Goods	$	68,000	$	58,000

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.

Gitano Products Schedule of Cost of Goods Manufactured Direct materials: Total raw materials available Raw materials used in production Total manufacturing costs Cost of goods manufactured

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 $40,000 ending balance in Work in Process includes $8,300 of direct materials. Given this assumption, supply the information for Direct Materials, Direct Labor, Manufacturing overhead and work in progress inventory

Answer 1

1) Predetermine overhead rate = 113100/87000 = 130% of direct material used

2) Direct material used = 27000+131000-11000 = 147000

Applied overhead = 147000*1.3 = 191100

Actual overhead = 194500

Under applied overhead = 194500-191100 = 3400

3) Schedule of cost of goods manufactured

Direct material
Beginning raw material	27000
Raw material purchase	131000
Raw material available for use	158000
Less: Ending raw material	-11000
Direct material used		147000
Direct labor		83000
Manufacturing overhead		191100
Total manufacturing cost		421100
Beginning work in process		49000
Total cost of work in process		470100
Less: Ending work in process		-40000
Cost of goods manufactured		430100

4) Schedule of cost of goods sold

Beginning finished goods	68000
Cost of goods manufactured	430100
Total cost of goods available for sale	498100
Less: Ending finished goods	-58000
Unadjusted cost of goods sold	440100

5) Ending work in process = 40000

Direct material = 8300

Overhead = 8300*1.3 = 10790

Direct labor = 20910