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	$	127,900
Property taxes	$	9,000
Depreciation of equipment	$	17,000
Maintenance	$	15,000
Insurance	$	9,400
Rent, building	$	35,000

	Beginning		Ending
Raw Materials	$	23,000	$	13,000
Work in Process	$	44,000	$	35,000
Finished Goods	$	73,000	$	59,000

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 $35,000 ending balance in Work in Process includes $8,800 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) Predetermine overhead rate = 127400/91000 = 140% of direct material used

2) Applied overhead = (23000+139000-13000)*1.4 = 208600

Actual overhead = 213300

Under applied overhead = 213300-208600 = 4700

3) Schedule of cost of goods manufactured

Direct material
Beginning raw material	23000
Raw material purchase	139000
Raw material available for use	162000
Less: Ending raw material	-13000
Direct material used		149000
Direct labor		87000
Manufacturing overhead		208600
Total manufacturing cost		444600
Beginning work in process		44000
Total cost of work in process		488600
Less: Ending work in process		-35000
Cost of goods manufactured		453600

4) Unadjusted cost of goods sold = 73000+453600-59000 = 467600

5) Calculate following

Direct material	8800
Direct labor	13880
Overhead (8800*1.4)	12320
Ending WIP	35000