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 $130,200 of manufacturing overhead for an estimated allocation base of $93,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	137,000
Direct labor cost	$	89,000
Manufacturing overhead costs:
Indirect labor	$	130,000
Property taxes	$	8,700
Depreciation of equipment	$	15,000
Maintenance	$	15,000
Insurance	$	10,300
Rent, building	$	32,000

	Beginning		Ending
Raw Materials	$	21,000	$	10,000
Work in Process	$	50,000	$	37,000
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 $37,000 ending balance in Work in Process includes $9,000 of direct materials. Given this assumption, supply the information missing below:

ng your Required 1 Required 2 Required 3 Required 4 Required 5 Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as materials. A 50,000 Gitano Products Schedule of Cost of Goods Manufactured Beginning work in process inventory Direct materials: Direct labor 89,000 Add: Purchases of raw materials 148,000 Total raw materials available Less: Ending raw materials inventory Direct materials used in production Total manufacturing costs added to production Total manufacturing costs to account for 448,000 498,000 Cost of goods manufactured < Required 2 Required 4 >

Answer 1

Answer:

1.)  Predetermined Overhead Rate for the year

Estimated Manufacturing overhead (A)	$130,200
Estimated direct material used (B)	$93,000
Predetermined Overhead Rate for the year (A/B)	140%

2.) Calculation of Amount of Underapplied or Overapplied Overhead for the year:

Dierct materials used
Raw Material, Beginning	21,000
Add: Purchase of Raw Material	137,000
Less: Raw Material, Ending	(10,000)
Direct material used in production	148,000

Underapplied or overapplied overhead
Applied overhead ($148,000*140%)		207,200
Actual Overhead:
Indirect labor	130,000
Property taxes	8,700
Depreciation of Equipment	15,000
Maintenance	15,000
Insurance	10,300
Rent Building	32,000
Total Actual Overhead costs		211,000
Under applied Overhead (Actual - Applied)		3,800

3.) Schedule of Cost of Goods Manufactured

Gitano Products Schedule of cost of goods manufactured
Direct Material:
Raw Material, Beginning	21,000
Add: Purchase of Raw Material	137,000
Total Raw material available	158,000
Less: Raw Material, Ending	(10,000)
Raw material used in production		148,000
Direct Labor cost		89,000
Applied Manufacturing Overhead		207,200
Total Manufacturing Costs		444,200
Add: Work in Process, Beginning		50,000
Subtotal		494,200
Less: Work in Process, Ending		(37,000)
Cost of goods manufactured		457,200

4.) Unadjusted Cost of Goods Sold for the year

Gitano Products Schedule of cost of goods manufactured
Cost of Goods Manufactured	457,200
Add: Finished Goods, Beginning	70,000
Total Goods available for sale	527,200
Less: Finished Goods, Ending	(58,000)
Unadjusted Cost of goods Sold	469,200

5.)

Direct materials	9,000
Manufacturing overhead (9,000*140%)	12,600
Direct Labor (37,000- 9,000- 12,600)	15,400
Total ending balance in Work in Process	37,000

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