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 $800,000 of manufacturing overhead for an estimated allocation base of $500,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

  

Purchase of raw materials	$	510,000
Direct labor cost	$	90,000
Manufacturing overhead costs:
Indirect labor	$	170,000
Property taxes	$	48,000
Depreciation of equipment	$	260,000
Maintenance	$	95,000
Insurance	$	7,000
Rent, building	$	180,000

 

	Beginning		Ending
Raw Materials	$	20,000	$	80,000
Work in Process	$	150,000	$	70,000
Finished Goods	$	260,000	$	400,000

 

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 $70,000 ending balance in Work in Process includes $24,000 of direct materials. Given this assumption, supply the information missing below:

Direct materials:

Direct labor:

Manufacturing overhead:

Work in process inventory:

It would be greatly appreciated if you could show your work! I answered the question but am not sure what I got wrong.

Answer 1

1. a. Compute the predetermined overhead rate for the year.
Predetermined overhead rate = Estimated total manufacturing overhead cost/ Estimated total amount of the allocation base
			= $8,00,000/$5,00,000 = 160%
1b. Compute the amount of underapplied or overapplied overhead for the year
Amount of direct materials used in production for the year:
Raw materials inventory, beginning	$          20,000.00
Add, Purchases of raw materials.	$        510,000.00
Raw materials available	$        530,000.00
Deduct: Raw materials inventory, ending	$        (80,000.00)
Raw materials used in production	$        450,000.00
Actual manufacturing overhead costs:
Indirect labour	$        170,000.00
Property Tax	$          48,000.00
depreciation	$        260,000.00
Maintenance	$          95,000.00
Insurance	$             7,000.00
Rent of Building	$        180,000.00
Total actual overhead	$        760,000.00
Applied manufacturing overhead costs:	$        720,000.00
$450,000 × 160%
Total actual overhead	$        760,000.00
Under applied overhead	$          40,000.00
2.Prepare a schedule of cost of goods manufactured for the year
Gitano Products
Schedule of Cost of Goods Manufactured
Raw materials used in production	$        450,000.00
Direct Labour	$          90,000.00
Manufacturing overhead applied to work in process	$        720,000.00
Total manufacturing costs	$    1,260,000.00
Add: Work in process, beginning	$        150,000.00
Less: Work in process, closing	$        (70,000.00)
Cost of goods manufactured	$    1,340,000.00
3. Compute the Cost of Goods Sold for the year
Finished goods inventory, beginning	$        260,000.00
Add: Cost of goods manufactured	$    1,340,000.00
Deduct: Finished goods inventory, ending	$      (400,000.00)
Cost of goods sold	$    1,200,000.00
The underapplied overhead can either be closed out to Cost of Goods Sold or allocated between Work in Process, Finished Goods, and Cost of Goods Sold based on the overhead applied during the year in the ending balance in each of these accounts
4. Job 215 was started and completed during the year. What price would have been charged to the customer if the job required $8,500 in direct materials and $2,700 in direct labor cost and the company priced its jobs at 25% above the job’s cost according to the accounting system?
Raw materials	$             8,500.00
Direct Labour	$             2,700.00
Manufacturing overhead applied ($8500*160%)	$          13,600.00
Total manufacturing costs	$          24,800.00
Profit (25% of cost)i.e., 24800*.25	$             6,200.00
Selling Price	$          31,000.00
$31,000 wil be the price that will be charged from the customer
5. Direct materials made up $24,000 of the $70,000 ending Work in Process inventory balance
The amount of overhead cost in Work in Process was
$24,000 direct materials cost × 160% = $38,400
The amount of direct labor cost in Work in Process is
Total ending work in process	$          70,000.00
Less: Direct Material	$        (24,000.00)
Less: Manufacturing Overhead	$        (38,400.00)
Drect Labour Cost	$             7,600.00
The completed schedule of costs in Work in Process was
Raw materials	$          24,000.00
Direct Labour	$             7,600.00
Manufacturing overhead applied	$          38,400.00
Total	$          70,000.00