Question

Problem 2-25A Schedule of Cost of Goods Manufactured; Overhead Analysis [LO2-1, LO2-2, LO2-3, LO2-6, LO2-7]

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 $108,000 of manufacturing overhead for an estimated allocation base of $90,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

  

Purchase of raw materials	$	131,000
Direct labor cost	$	86,000
Manufacturing overhead costs:
Indirect labor	$	95,800
Property taxes	$	8,900
Depreciation of equipment	$	19,000
Maintenance	$	12,000
Insurance	$	8,600
Rent, building	$	34,000

  

	Beginning		Ending
Raw Materials	$	26,000	$	12,000
Work in Process	$	46,000	$	37,000
Finished Goods	$	73,000	$	56,000

  

Required:
1-a.	Compute the predetermined overhead rate for the year.

       

1-b.	Compute the amount of underapplied or overapplied overhead for the year.

       

2.	Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

       

3.	Compute the unadjusted cost of goods sold for the year. (Do not include any underapplied or overapplied overhead in your cost of goods sold figure.)

       

4.	Job 215 was started and completed during the year. What price would have been charged to the customer if the job required $3,800 in direct materials and $4,000 in direct labor cost and the company priced its jobs at 25% above the job’s cost according to the accounting system? (Round your answer to the nearest dollar.)

       

5.	Direct materials made up $8,600 of the $37,000 ending Work in Process inventory balance. Supply the information missing below:

       

Answer 1

1) Overhead rate = 108000*100/90000 = 120% of direct material used

2) Actual overhead = 178300

Direct material used = 26000+131000-12000 = 145000

Overhead applied = 145000*120% = 174000

Underapplied overhead = 178300-174000 = $4300

2)

Schedule of cost of goods manufactured

Beginning raw material	26000
Raw material purchase	131000
Less: Raw material ending	-12000
Direct material used		145000
Direct labour		86000
Overhead applied		174000
Total manufacturing cost		405000
Beginning WIP		46000
TOtal Cost of work in process		451000
Less: Ending WIP		-37000
Cost of goods manufactured		414000

3) Compute the unadjusted cost of goods sold for the year. (Do not include any underapplied or overapplied overhead in your cost of goods sold figure.)

Beginning finished goods	73000
Cost of goods manufactured	414000
Cost of goods available for sale	487000
Less: Ending finished goods	-56000
Unadjusted cost of goods sold	431000

4) Calculate price

Direct material	3800
Direct labour	4000
Overhead (3800*1.2)	4560
Total Cost	12360
Markup (12360*25%)	3090
Price	15450

5) Calculate missing amount

Ending work in process	37000
Direct material	8600
Overhead (8600*120%)	10320
Direct labour (37000-8600-10320)	18080