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 $115,700 of manufacturing overhead for an estimated allocation base of $89,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

  

Purchase of raw materials	$	139,000
Direct labor cost	$	85,000
Manufacturing overhead costs:
Indirect labor	$	102,100
Property taxes	$	8,600
Depreciation of equipment	$	19,000
Maintenance	$	13,000
Insurance	$	10,200
Rent, building	$	39,000

  

	Beginning		Ending
Raw Materials	$	21,000	$	16,000
Work in Process	$	50,000	$	36,000
Finished Goods	$	72,000	$	60,000

  

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 $4,000 in direct materials and $4,000 in direct labor cost and the company priced its jobs at 45% above the job’s cost according to the accounting system? (Round your answer to the nearest dollar.)

       

5.	Direct materials made up $8,500 of the $36,000 ending Work in Process inventory balance. Supply the information missing below:

       

Answer 1

For Gitano Products,

1-a Computation of predetermined overhead rate for the year.

Overhead Recovery rate = Budgeted Overheads/Budgeted direct material dollars estimated to be used in production

= 115700/89000

= $1.3 per direct material used

1-b Computation of Under/Over applied Overhead for the year

Manufacturing Overheads applied = 144000 (Notes below) * 1.3

= 187200

Actual Overheads   = 191900

Under applied Manufacturing Overheads = Overheads applied-Actual Overheads

= 187200-191900

= (4700)

Notes : Raw material used in the production for the year = Opening stock + Purchases during the period - closing stock

= 21000+139000-16000

= $144000

2. Schedule of cost of goods manufactured for the year:

PARTICULARS	AMOUNT ($)
Beginning Raw material inventory	21000
Add: Purchase of raw material	139000
Less: Ending Raw material inventory	(16000)
Direct materials used in production	144000
Direct Labour	85000
Manufacturing Overheads applied	187200
Total Manufacturing cost	416200
Add: Beggining WIP inventory	50000
Less: Closing WIP inventory	(36000)
Cost of goods manufactured	430200

3. Computation of unadjusted cost of goods sold for the year

PARTICULARS	AMOUNT($)
Cost of goods manufactured(From point 2)	430200
Add: Opening Finished goods inventory	72000
Less: Closing finished goods inventory	(60000)
Cost of goods sold (unadjusted)	442200

4. Computation of price quoted for JOB 215

PARTICULARS	COMPUTATION	AMOUNT($)
Direct Material	Given	4000
Direct Labour	Given	4000
Manufacturing Overheads	4000*1.3	5200
Total cost		13200
Mark up (45% on cost)	13200*45%	5940
Price		19140

5th point required more information