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 $121,800 of manufacturing overhead for an estimated allocation base of $87,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: $ 134,000 $ 83,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 125,600 $ 8,700 $ 19,000 $ 14,000 $ 9,300 $ 34,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 24,000 $ 10,000 $ 47,000 $ 39,000 $ 73,000 $ 56,000

Answer 1

1	Predetermined overhead rate=Estimated manufacturing overhead/Estimated direct materials used=121800/87000=$ 1.40 per direct material
2	Actual manufacturing overhead:
					$
	Indirect labor				125600
	Property taxes				8700
	Depreciation of equipment				19000
	Maintenance				14000
	Insurance				9300
	Rent, building				34000
	Total				210600
	Manufacturing overhead applied=Actual direct materials used*Predetermined overhead rate
	Actual direct materials used:
					$
	Beginning raw materials				24000
	Add: Purchase of raw materials				134000
					158000
	Less: Ending raw materials				10000
	Actual direct materials used				148000
	Manufacturing overhead applied=148000*1.40=$ 207200
	MOH applied < Actual MOH. Hence,overhead is said to be under-applied.
	Under-applied overhead=Actual MOH-Applied MOH=210600-207200=$ 3400
3		Schedule of cost of goods manufactured
					$	$
	Direct materials:
	Raw materials inventory,beginning				24000
	Add: Purchase of raw materials				134000
	Total raw materials available				158000
	Deduct: Raw materials inventory,ending				10000
	Raw materials used in production					148000
	Direct labor					83000
	Manufacturing overhead applied					207200
	Total manufacturing costs					438200
	Add: Beginning work in process inventory					47000
						485200
	Deduct: Ending work in process inventory					39000
	Cost of goods manufactured					446200
4		Schedule of cost of goods sold
						$
	Finished goods inventory,beginning					73000
	Add: Cost of goods manufactured					446200
	Cost of goods available for sale					519200
	Deduct: Finished goods inventory,ending					56000
	Unadjusted cost of goods sold					463200
5	Work in process inventory=Direct materials+Direct labor+Manufacturing overhead
	Manufacturing overhead applied=Actual direct materials used*Predetermined overhead rate=8800*1.4=$ 12320
	39000=8800+Direct labor+12320
	Direct labor=39000-8800-12320=$ 17880
					$
	Direct materials				8800
	Direct labor				17880
	Manufacturing overhead				12320
	Work in process inventory				39000