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 $126,000 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	$	134,000
Direct labor cost	$	86,000
Manufacturing overhead costs:
Indirect labor	$	127,900
Property taxes	$	8,700
Depreciation of equipment	$	20,000
Maintenance	$	15,000
Insurance	$	8,800
Rent, building	$	34,000

	Beginning		Ending
Raw Materials	$	28,000	$	11,000
Work in Process	$	47,000	$	40,000
Finished Goods	$	70,000	$	56,000

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 $40,000 ending balance in Work in Process includes $8,100 of direct materials. Given this assumption, supply the information missing below:

1.

Compute the predetermined overhead rate for the year.

	Predetermined overhead rate %

2.

Compute the amount of underapplied or overapplied overhead for the year.

	overhead

3.

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

	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

4.

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

	Unadjusted cost of goods sold

5.

Assume that the $40,000 ending balance in Work in Process includes $8,100 of direct materials. Given this assumption, supply the information missing below:

	Direct materials Direct labor Manufacturing overhead Work in process inventory

Answer 1

Req 1.
Estimated Overheads		1,26,000
Divide: Estimated Direct material cost	90,000
OH rate as % of Direct material cost	140%
Req 2.
Total Overheads incurred:
Indirect labour		127900
Property taxes		8700
Depreciation		20000
Maintenance		15000
Insurance			8800
Rent of building		34000
Total Overheads incurred:		214400
Overheads applied			211400
(28000+134000-11000)*140%
Under-applied Overheads		3000
Req 3.
Schedule of cost of goods manufactured
Beginning inventory of WIP			47,000
Current cost of manufacture
Beginning inventory of RM	28,000
Add: Purchase		1,34,000
Total Material available	1,62,000
Less: Ending inventory of RM	11,000
Direct material consumed		1,51,000
Direct labor cost			86,000
Factory overheads applied (151000*140%)	211400
Total Current cost of manufacturing		448400
Total cost of goods manufacturing		495400
Less: Ending inventory of WIP			40000
Cost of goods manufactured			455400
Req 4.
Schedule of cost of goods sold:
Beginning inventory of FG		70,000
Add: Cost of goods manufactured	4,55,400
Total cost of goods available for sale	5,25,400
Less: Ending inventory of Fg		56,000
Cost of goods sold-Unadjusted		4,69,400
Req 5.
Direct material cost in WIP		8100
Overheads applied			11340
Labor cost (40000-8100-11340)		20560
Thus,
Direct material cost			8100
Direct labour cost			20560
Overheads applied			11340
Ending WIP balance			40000