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	$	138,000
Direct labor cost	$	86,000
Manufacturing overhead costs:
Indirect labor	$	136,800
Property taxes	$	8,200
Depreciation of equipment	$	19,000
Maintenance	$	13,000
Insurance	$	11,300
Rent, building	$	32,000

  

	Beginning		Ending
Raw Materials	$	27,000	$	11,000
Work in Process	$	44,000	$	40,000
Finished Goods	$	69,000	$	62,000

  

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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 $3,900 in direct materials and $4,500 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 $8,400 of the $40,000 ending Work in Process inventory balance. Supply the information missing below:

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Answer 1

Solution

Predetermined Overhead Rate = Estimated total manufacturing overhead cost / Estimated total amount of allocation base= $126,000/ $90,000 *100 = 140.00%

Gitano Products
Schedule of Cost of Goods Manufactured
Direct materials:
Beginning raw materials inventory	27,000
Add: Purchases of raw materials	138,000
Total raw materials available	165,000
Less: Ending raw materials inventory	11,000
Raw materials used in production		154,000
Direct labor		86,000
Manufacturing overheads (154,000x 140% = 215,600 OR 220,300 (136,800+8,200+19,000+13,000+ 11,300+32,000) LOWER		215,600
Total manufacturing costs		455,600
Add: Beginning work in process inventory		44000
		499600
Less: Ending work in process inventory		40000
Cost of goods manufactured $		459,600

3) Unadjusted cost of goods sold: $466,600

Gitano Products
Schedule of Cost of Goods Sold
Cost of goods manufactured $	459,600
Add: Beginning finished goods inventory	69,000
Cost of goods available for sale	528,600
Less: Ending finished goods inventory	62,000
Unadjusted Cost of goods sold $	466,600

4) Price charged to customer is $ 20,097

Direct Material	3,900
Direct Labor	4,500
Overhead applied (3,900*140%)	5,460
Cost to customer	13,860
Price to customer (13,860 * 145%)	20,097

5) Work in process inventory balance is $ 40,000

Direct materials	8400
Direct labor ($40000 - $8400 - $11050)	19840
Manufacturing overhead (140% x $8400)	11,760
Work in process inventory	40,000

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