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 $111,800 of manufacturing overhead for an estimated allocation base of $86,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: $ 130,000 $ 82,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 100,700 $ 8,400 $ 18,000 $ 15,000 $ 9,700 $ 36,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 23,000 $ 11,000 $ 48,000 $ 36,000 $ 73,000 $ 56,000 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 5. Assume that the $36,000 ending balance in Work in Process includes $8,400 of direct materials. Given this assumption, supply the information missing below: answer.

Answer 1

Predetermine overhead rate = 111800/86000 = 130% of direct material used

2) Direct material used = 23000+130000-11000 = 142000

Applied overhead = 142000*1.3 = 184600

Actual overhead = 187800

Under applied overhead = 187800-184600 = 3200

3) Schedule of cost of goods manufactured

Beginning work in process			48000
Direct material used
Beginning raw material	23000
Raw material purchase	130000
Raw material available for use	153000
Less: Ending raw material	-11000
Direct material used in production		142000
Direct labor		82000
Manufacturing overhead		184600
Total manufacturing cost			408600
Total cost of work in process			456600
Less: Ending work in process			-36000
Cost of goods manufactured			420600

4) Unadjusted cost of goods sold = 73000+420600-56000 = 437600

5) Calculate following

Direct material	8400
Direct labor	16680
Overhead (8400*1.3)	10920
Ending WIP	36000