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 $113,100 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:

Purchase of raw materials	$	135,000
Direct labor cost	$	83,000
Manufacturing overhead costs:
Indirect labor	$	109,700
Property taxes	$	8,100
Depreciation of equipment	$	16,000
Maintenance	$	13,000
Insurance	$	10,800
Rent, building	$	34,000

	Beginning		Ending
Raw Materials	$	25,000	$	16,000
Work in Process	$	48,000	$	37,000
Finished Goods	$	70,000	$	55,000

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 $8,700 of direct materials. Given this assumption, supply the information missing below:

	Predetermined overhead rate %

	overhead

Gitano Products Schedule of Cost of Goods Manufactured Direct materials: Total raw materials available Raw materials used in production Total manufacturing costs Cost of goods manufactured

	Unadjusted cost of goods sold

Direct materials Direct labor Manufacturing overhead Work in process inventory

Answer 1

1) Predetermine overhead rate = 113100/87000 = 130% of direct material used

2) Overhead applied = (25000+135000-16000)*1.3 = 187200

Actual overhead = 191600

Under applied overhead = 4400

3)

Gitano Products
Schedule of Cost of Goods Manufactured
Direct materials:
Beginning raw material	25000
Raw material purchase	135000
Total raw materials available	160000
Less: Ending raw material	-16000
Raw materials used in production		144000
Direct labor		83000
Overhead applied		187200
Total manufacturing costs		414200
Beginning work in process		48000
Total Cost of work in process		462200
Less: Ending work in process		-37000
Cost of goods manufactured		425200

4) Unadjusted cost of goods sold = 70000+425200-55000 = 440200

5) Calculate following

Direct materials	8700
Direct labor	16990
Manufacturing overhead	8700*1.3 = 11310
Work in process inventory	37000