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 $132,000 of manufacturing overhead for an estimated allocation base of $88,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: Purchase of raw materials $ 140,000 Direct labor cost $ 84,000 Manufacturing overhead costs: Indirect labor $ 140,800 Property taxes $ 8,400 Depreciation of equipment $ 19,000 Maintenance $ 15,000 Insurance $ 10,600 Rent, building $ 36,000 Beginning Ending Raw Materials $ 27,000 $ 16,000 Work in Process $ 44,000 $ 39,000 Finished Goods $ 70,000 $ 58,000 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 $8,400 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Gitano Products
1)	Predermined Overhead rate=Estimated Overhead/Allocation base
	Estimated Overhead=(A)	$ 1,32,000.00
	Direct Material used =(B)	$     88,000.00
	Predermined Overhead rate=(A)/(B)	150%
2)	Direct Material used=Beginning Raw Material Inventory+Purchases-Ending Raw Material inventory
	Beginning Raw Material=(A)	$     27,000.00
	Purchases=(B)	$ 1,40,000.00
	Ending Raw Material=(C )	$     16,000.00
	Direct Material used=(A)+(B)-(C )	$ 1,51,000.00
	Overhead applied=Raw Material used*Predermined overhead rate=($151000*150%)	$ 2,26,500.00
	Actual Overhead
	Indirect Labor	$ 1,40,800.00
	Property taxes	$       8,400.00
	Deprecciation of equipment	$     19,000.00
	Maintenance	$     15,000.00
	Insurance	$     10,600.00
	Rent-Building	$     36,000.00
	Total	$ 2,29,800.00
	Overhead under-applied($229800-$226500)	$       3,300.00
3)	Schedule of Cost of goods manufactured
			Amount
	Raw Material used in Production($27000+$140000-$16000)		$                     1,51,000.00
	Direct Labor		$                         84,000.00
	Manuafcturing Overhead		$                     2,26,500.00
	Total Manufacturing Cost		$                     4,61,500.00
	Add: Work in Process January 1st,		$                         44,000.00
	Total		$                     5,05,500.00
	Less: Work in Process Ending Dec 31st		$                         39,000.00
	Cost of goods manufactured		$                     4,66,500.00
4)	Schedule of cost of goods sold
	Beginning Finished goods inventory	$     70,000.00
	Cost of goods manufactured	$ 4,66,500.00
	Cost of goods available for sales	$ 5,36,500.00
	Less:Ending Finished goods Inventory	$     58,000.00
	Unadjusted cost of goods sold	$ 4,78,500.00
5)	Direct Material	$       8,400.00
	Direct Labor($39000-$8400-$12600)	$     18,000.00
	Manufacturing Overhead=($8400*150%)	$     12,600.00
	Total Work in Process	$     39,000.00