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 $123,200 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. $ 133,000 $ 84,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 116,300 $ 8,300 $ 20,000 $ 15,000 8,200 $ 36,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 25,000 $ 15,000 $ 46,000 $40,000 $ 70,000 $ 58,000

Answer 1

Required 1 :
Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct materials costs = 123200 / 88000 =	140%

Required 2 :
Beginning raw materials	25000
(+) Purchase of raw materials	133000
Total raw materials available	158000
(-) Ending raw materials	15000
Raw materials used	143000
Overhead applied = Raw materials used * Predetermined overhead rate = 143000 * 140% =	200200
Indirect labor	116300
Property taxes	8300
Depreciation of equipment	20000
Maintenance	15000
Insurance	8200
Rent, building	36000
Actual overhead costs	203800
As the overhead applied are less than the actual overhead costs, the overheads are underapplied
Underapplied overhead = Actual overhead costs - Overhead applied = 203800 - 200200 =	3600

Underapplied

Overhead

3600

Required 3 :
Gitano Products
Schedule of cost of goods manufactured
Direct materials :
Beginning raw materials	25000
Purchase of raw materials	133000
Total raw materials available	158000
Ending raw materials	15000
Raw materials used in production		143000
Direct labor cost		84000
Manufacturing overhead applied		200200
Total manufacturing costs		427200
Beginning work in process		46000
Total cost of work in process		473200
Ending work in process		40000
Cost of goods manufactured		433200

Required 4 :
Cost of goods manufactured	433200
(+) Beginning finished goods	70000
(-) Ending finished goods	58000
Unadjusted cost of goods sold	445200

Required 5 :
Direct materials	8700
Direct labor cost ( 40000 - 8700 - 19860 )	11440
Manufacturing overhead ( 8700 * 140% )	12180
Work in process inventory	40000