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 $109,200 of manufacturing overhead for an estimated allocation base of $84,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	131,000
Direct labor cost	$	80,000
Manufacturing overhead costs:
Indirect labor	$	103,200
Property taxes	$	8,700
Depreciation of equipment	$	19,000
Maintenance	$	12,000
Insurance	$	10,300
Rent, building	$	36,000

	Beginning		Ending
Raw Materials	$	26,000	$	14,000
Work in Process	$	45,000	$	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 $8,500 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Req 1.
Oh rate as % of Direct material cost:
Estimated Overheads		1,09,200
Divide: Estimated Direct material cost	84,000
Oh rate as % of Direct material cost:	130%
Req 2.
Direct Material used:
Beginning RM inventory		26,000
Add: Purchase			1,31,000
Total Rm available			1,57,000
Less: Ending RM inventory		14,000
Direct Material used:			1,43,000
OH applied (143,000*130%)		1,85,900
Oh incurred:
Indirect labour		1,03,000
Property taxes		8,700
Depreciation on equipment	19,000
Maintenance		12,000
Insurance			10,300
Rent of building		36,000	1,89,000
Under-applied overheads		3,100
Req 3.
Schedule of Cost of Goods manufactured:
Beginning inventory of WIP			45,000
Current cost
Beginning RM inventory	26,000
Add: Purchase		1,31,000
Total Rm available		1,57,000
Less: Ending RM inventory	14,000
Direct Material used:			1,43,000
Direct labour used			80,000
Factory overheads applied		1,85,900
Total Manufacturing cost			4,08,900
Total Cost of WIP				4,53,900
Less: Ending inventory of WIP			38,000
Cost of goods manufactured			4,15,900
Req 4.
Schedule of Cost of goods sold:
Beginning inventory of FG			70,000
Add: Cost of goods manufactured		4,15,900
Total cost of goods available for sale		4,85,900
Less: Ending inventory of FG			-60,000
Cost of goods sold-Unadjusted			4,25,900
Req 5.
Ending balance of Wip			38,000
Less: Material cost				8500
Less: overheads applied	(8500*130%)	11,050
Direct labour cost included			18,450