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	$	140,000
Direct labor cost	$	87,000
Manufacturing overhead costs:
Indirect labor	$	132,400
Property taxes	$	8,200
Depreciation of equipment	$	17,000
Maintenance	$	13,000
Insurance	$	10,400
Rent, building	$	38,000

	Beginning		Ending
Raw Materials	$	29,000	$	15,000
Work in Process	$	48,000	$	37,000
Finished Goods	$	69,000	$	61,000

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 $8,000 of direct materials. Given this assumption, supply the information missing below:

Thanks!

Answer 1

OH rate:;
Estimated OH				127400
Divide: estimated Direct material cost				91000
OH rate as % of DMC				140%
OH incurred:
Indirect labor			132400
Property taxes			8200
Depreciation			17000
maintenance			13000
Insurance			10400
Rent building			38000
OH incurred:				219000
OH applied				215600
(29000+140000-15000)*140%
Under-applied OH				3400
Cost of goods Manufactured:
Beginning WIP inventory					48000
Current cost:
Beginning inventory of Rm			29000
Add: Purchase			140000
Total RM available			169000
Less: Ending inventory of RM			15000
Costt of Directt material used				154000
Direct labor				87000
Oh cost applied (154000*140%)				215600
Total current cost of manufacturing					456600
Total cost of WIP					504600
Less: Ending inventory of WIP					37000
Cost of goods Manufactured:					467600
Unadjusted Cost of g oods sold:
Beginning Inventory of FG					69000
Add: Cost of goods manufactured					467600
Total cost of goods available for sale					536600
Less: Ending inventory of FG					61000
Cost of goods sold unadjusted					475600
Ending inventory of WIP				37000
Less: Direct material				8000
Less: Oh applied (8000*140%)				11200
Labor cost incurred				17800