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 $105,600 of manufacturing overhead for an estimated allocation base of $88.000 direct material dollars to be used in production. The company has provided the following data for the just completed year. $ 132,eee $ 84, eee Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ s $ $ $ $ 91,700 .ee 17.00 11.ee 11.ee 38,eee Raw Materials Work in process Finished Goods Beginning Ending $ 29,000 5 16,000 $ 44,000 $ 35,000 $ 72,000 $ 55,000 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 $35.000 ending balance in work in Process includes $8.300 of direct materials. Given this assumption supply the

Answer 1

Required 1 :
Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct materials costs = 105600 / 88000	120%

Required 2 :
Beginning raw materials	29000
(+) Purchase of raw materials	132000
Total raw materials available	161000
(-) Ending raw materials	16000
Raw materials used	145000
Overhead applied = Raw materials used * Predetermined overhead rate = 145000 * 120%	174000
Indirect labor	91700
Property taxes	8800
Depreciation of equipment	17000
Maintenance	11000
Insurance	11000
Rent, building	38000
Actual overhead costs	177500
As the overhead applied are less than the actual overhead costs, the overheads are underapplied
Underapplied overhead = Actual overhead costs - Overhead applied = 177500 - 174000	3500

Underapplied

Overhead

3500

Required 3 :
Gitano Products
Schedule of cost of goods manufactured
Direct materials :
Beginning raw materials	29000
Purchase of raw materials	132000
Total raw materials available	161000
Ending raw materials	16000
Raw materials used in production		145000
Direct labor cost		84000
Manufacturing overhead applied		174000
Total manufacturing costs		403000
Beginning work in process		44000
Total cost of work in process		447000
Ending work in process		35000
Cost of goods manufactured		412000

Required 4 :
Cost of goods manufactured	412000
(+) Beginning finished goods	72000
(-) Ending finished goods	55000
Unadjusted cost of goods sold	429000

Required 5 :
Direct materials	8300
Direct labor cost ( 35000 - 8300 - 9960 )	16740
Manufacturing overhead ( 8300 * 120% )	9960
Work in process inventory	35000