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 $800,000 of manufacturing overhead for an estimated allocation base of $500,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

  

Purchase of raw materials	$	510,000
Direct labor cost	$	90,000
Manufacturing overhead costs:
Indirect labor	$	170,000
Property taxes	$	48,000
Depreciation of equipment	$	260,000
Maintenance	$	95,000
Insurance	$	7,000
Rent, building	$	180,000

	Beginning		Ending
Raw Materials	$	20,000	$	80,000
Work in Process	$	150,000	$	70,000
Finished Goods	$	260,000	$	400,000

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 $70,000 ending balance in Work in Process includes $24,000 of direct materials. Given this assumption, supply the information missing below:

Answer 1

800000 500000 510000 90000 Estimated Manufacturing overehead Estiamted Allocation Base (Direct Material) Purchases of Raw Material Direct labor Cost Manufacturing overehad Cost Indirect labor Property Taxes Depreciation of Equipment Maintenance Insurance Rent, Building Total Manufacturing overhead Inventories Raw Material Work in Process Finished Goods 170000 48000 260000 95000 7000 180000 760000 Beginning Ending 20000 80000 150000 70000 260000 400000

1.) Predetermined overhead rate = Estimated Predetermiend overhead Rate = Estimated MOH / Allocation Base Predetermiend overhead Rate = 800000 / 500000 Answer 160% 2) Underapplied or Overapplied overhead Purchases of Raw Material 510000 ADD: Beginning Raw Material 20000 Less : Ending Raw Material 80000 Direct Material Used 450000 Applied overhead = Predetermined F * Direct material Used 160% 450000 720000 Less : Actual Overhead 760000 Underapplied Overhead 40000 Underapplied Overhead 40000 Answer

3) Schedule of Cost of Goods Manuacturing Direct Material Beginning Raw Material ADD: Purchase of Raw Material Total raw Material Available LESS: Ending Raw Material inventory Raw material Used in Prodcution Direct Labor Manufacturing overheads Applied Total Manufacturing cost ADD: Beginning Work in Process 20000 510000 530000 -80000 450000 90000 720000 1260000 150000 1410000 -70000 1340000 LESS: Ending Work in Process Cost of Goods Manufactured 4) Unadjusted Cost of Goods Sold Beginning Finished Goods Inventory ADD: Cost of Goods Manufactured Cost of Goods Available for Sale LESS:Ending Finished Goods Invenotry Unadjusted Cost of Goods Sold Unadjusted Cost of Goods Sold 260000 1340000 1600000 -400000 1200000 1200000 Answer 5-) Supplie the Missing amounts Direct Material Direct labor(70000-24000-38400) Manufacturing overhead Work in Process inventory 24000 7600 38400 70000 24000* 160%