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 $127,400 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: Purchase of raw materials $ 139,000 Direct labor cost $ 87,000 Manufacturing overhead costs: Indirect labor $ 126,300 Property taxes $ 9,000 Depreciation of equipment $ 20,000 Maintenance $ 13,000 Insurance $ 9,800 Rent, building $ 36,000 Beginning Ending Raw Materials $ 27,000 $ 16,000 Work in Process $ 45,000 $ 37,000 Finished Goods $ 75,000 $ 61,000 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 $8,700 of direct materials. Given this assumption, supply the information missing below:

Assume that the $37,000 ending balance in Work in Process includes $8,700 of direct materials. Given this assumption, supply the information missing below:

	Direct materials $8,700 Direct labor Manufacturing overhead Work in process inventory $37,000

Answer 1

1
Estimated manufacturing overhead	127400
Divide by estimated direct materials	91000
Predetermined overhead rate	140%
2
Indirect labor	126300
Property	9000
Depreciation of equipment	20000
Maintenance	13000
Insurance	9800
Rent, building	36000
Total Manufacturing overhead costs	214100
Total Actual Manufacturing overhead costs	214100
Less: Manufacturing overhead applied to work in process	210000		=150000*140%
Underapplied overhead	4100
3
Schedule of Cost of Goods Manufactured
Direct materials:
Beginning Raw materials inventory	27000
Add: Purchases of raw materials	139000
Total raw materials available	166000
Less: Ending Raw materials inventory	16000
Raw materials used in production		150000
Direct labor cost		87000
Manufacturing overhead applied to work in process		210000	=150000*140%
Total manufacturing costs		447000
Add: Beginning Work in process inventory		45000
		492000
Less: Ending Work in process inventory		37000
Cost of goods manufactured		455000
4
Finished goods inventory, beginning	75000
Add: Cost of goods manufactured	455000
Cost of Goods available for sale	530000
Less: Finished goods inventory, ending	61000
Unadjusted Cost of goods sold	469000
5
Direct materials	8700
Direct labor	16120		=37000-8700-12180
Manufacturing overhead	12180		=8700*140%
Work in process inventory	37000