Question

Problem 3-14 (Algo) Schedule of Cost of Goods Manufactured; Overhead Analysis (LO3-3, LO3-4) 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 $118,300 of manufacturing overhead for an estimated allocation base of $91,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: $ 133,000 $ 87,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 107,800 $ 8,800 $ 19,000 $ 15,000 $ 9,900 $ 30,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 26,000 $ 15,000 $ 49,000 $ 37,000 $ 71,000 $ 62,000 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 $37,000 ending balance in Work in Process includes $8,100 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1.

Predetermined overhead rate = $118,300 / $91,000 = 130% of direct material dollars

2.

Direct material used = $26,000+133,000-15,000 = $144,000

Under or overapplied overhead = Actual manufacturing overhead - Applied manufacturing overhead

Under or overapplied overhead = $190,500 - $187,200($144,000*130%)

Underapplied overhead = $3,300

3.

Gitano Products Schedule of Cost of Goods Manufactured
Beginning work in process inventory			$49,000
Direct materials:
Beginning raw material inventory	$26,000
Add: Purchases of raw material	133,000
Total raw material available	159,000
Less: Ending raw material inventory	15,000
Direct material used in production		$144,000
Direct labor		87,000
Manufacturing overhead applied ($144,000*130%)		187,200
Total manufacturing cost added to production			418,200
Total manufacturing cost to account for			467,200
Less: Ending work in process inventory			37,000
Cost of goods manufactured			$430,200

4.

Direct materials	$8,100
Direct labor ($37,000-8,100-10,530)	18,370
Manufacturing overhead applied ($8,100*130%)	10,530
Work in process inventory	$37,000