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 $105,600 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	$	130,000
Direct labor cost	$	84,000
Manufacturing overhead costs:
Indirect labor	$	88,300
Property taxes	$	8,000
Depreciation of equipment	$	16,000
Maintenance	$	13,000
Insurance	$	9,500
Rent, building	$	36,000

	Beginning		Ending
Raw Materials	$	24,000	$	15,000
Work in Process	$	46,000	$	38,000
Finished Goods	$	70,000	$	60,000

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 $38,000 ending balance in Work in Process includes $8,800 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1	Predetermined Overhead Rate = $105,600/ $ 88,000
	= 120%
2	Overhead applied = ( 24,000 + +130,000 - 15,000 ) * 120%
	= $ 166,800
	Actual Overhead = 88,300 + 8,000 + 16,000 + 13,000 + 9,500 + 36,000
	= $ 170,800
	Underapplied Overhead = $ 4,000
	( $ 170,800 - $ 166,800 )
3	Schedule of Goods Manufactured
	Direct materials :
	Raw material inventory, beginning	24,000
	Add : Purchases	130,000
	Total ratw material available	154,000
	Less : Raw material inventory , ending	-15,000
	Raw material used in production		139,000
	Direct Labor		84,000
	Manufacturing overhead applied		166,800
	Total manufacturing cost		389800
	Add : Work in process , beginning		46,000
			435,800
	Less : Work in process , ending		-38,000
	Cost of goods sold		397,800
4	Unadjusted Cost of Goods sold
	Finished goods, beginning	70,000
	Add : Cost of goods sold	397,800
		467,800
	Less : Finished goods, ending	-60,000
	Unadjusted Cost of Goods sold	407,800
5	Direct Material	8,800
	Direct Labor	18,640
	Overhead applied ( 8,800 * 120% )	10,560
	Work in process inventory	38,000
	Direct Labor = 38,000 - 8,800 - 10,560
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