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 $104,400 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: $ 131,000 $ 83,000 0 0 0 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ $ 94,100 8,600 18,000 12,000 7,300 32,000 0 $ Raw Materials Work in Process Finished Goods Beginning Ending $ 23,000 $ 14,000 $ 46,000 $ 40,000 $ 71,000 $ 57,000 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 $40,000 ending balance in Work in Process includes $9,000 of direct materials. Given this assumption, supply the information missing below:

Answer 1

a) Predetermine overhead rate = 104400/87000 = 120% of direct material used

b) Applied overhead :

Direct material cost = 23000+131000-14000 = 140000

Applied overhead = 140000*1.2 = 168000

Actual overhead = 172000

Under applied overhead = 168000-172000 = 4000

c) Schedule of cost of goods manufactured

Direct material used
Beginning raw material	23000
Raw material purchase	131000
Raw material available for use	154000
Less: Ending raw material	-14000
Direct material used		140000
Direct labor		83000
Manufacturing overhead		168000
Total manufacturing cost		391000
Beginning work in process		46000
Total cost of work in process		437000
Less: Ending work in process		-40000
Cost of goods manufactured		397000

d) Unajdusted cost of goods sold = 71000+397000-57000 = 411000

e) Ending WIP = 40000

Applied overhead = 9000*1.2 = 10800

Direct labor = 40000-9000-10800 = 20200