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 $115,700 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: $ 135,000 $ 85,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 102,400 8,600 $ 19,000 $ 15,000 8,900 $ 40,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 27,000 $ 16,000 $ 50,000 $ 39,000 $ 75,000 $ 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 $39,000 ending balance in Work in Process includes $8,900 of direct materials. Given this assumption, supply the information missing below:

Answer 1

a) Predetermine overhead rate = 115700/89000 = 130% of direct material used

b) Applied overhead :

Direct material cost = 27000+135000-16000 = 146000

Applied overhead = 146000*1.3 = 189800

Actual overhead = 193900

Under applied overhead = 189800-193900 = 4100

c) Schedule of cost of goods manufactured

Direct material used
Beginning raw material	27000
Raw material purchase	135000
Raw material available for use	162000
Less: Ending raw material	-16000
Direct material used		146000
Direct labor		85000
Manufacturing overhead		189800
Total manufacturing cost		420800
Beginning work in process		50000
Total cost of work in process		470800
Less: Ending work in process		-39000
Cost of goods manufactured		431800

d) Unajdusted cost of goods sold = 75000+431800-60000 = 446800

e) Ending WIP = 39000

Applied overhead = 8900*1.3 = 11570

Direct labor = 39000-8900-11570 = 18530