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 $124,600 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 $ 132,000
Property taxes $ 8,600
Depreciation of equipment $ 20,000
Maintenance $ 14,000
Insurance $ 8,200
Rent, building $ 37,000

Beginning / Ending

Raw Materials $ 26,000 / $ 11,000
Work in Process $ 49,000 / $ 39,000
Finished Goods $ 75,000 / $ 60,000

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 $39,000 ending balance in Work in Process includes $8,000 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Requirement 1

Predetermined Overhead Rate = Total Estimated Manufacturing Overhead / Total Budgeted Direct Materials * 100

Total Estimated Manufacturing Overhead = $ 124,600

Total Budgeted Direct Materials = $ 89,000

Predetermined Overhead Rate = 124,600 / 89,000 * 100

Predetermined Overhead Rate = 140% of Direct Materials Cost

Requirement 2

Direct Materials Used = Beginning Balance of Raw Materials + Purchases of Raw Materials - Ending Inventory of Raw Materials

Direct Materials Used = 26,000 + 139,000 - 11000

Direct Materials Used = $ 154,000

Manufacturing Overhead Applied = Direct Materials Used * Predetermined Overhead Rate

= 154,000 * 140%

= $ 215,600

Actual Overhead Incurred = Indirect Labour + Property Taxes + Depreciation of Building + Maintenance + Insurance + Rent, Building

Actual Overhead Incurred = 132,000 + 8,600 + 20,000 + 14,000 + 8,200 + 37,000

Actual Overhead Incurred = 219,800

Manufacturing Overhead Underapplied / (Overapplied) = Actual Overhead Incurred - Manufacturing Overhead Applied

= 219,800 - 215,600

= $ 4,200

Requirement 3

Particulars	Amount	Amount
Direct Materials
Beginning Balance Raw Materials	26,000
Add: Raw Materials Purchases	139,000
Raw Materials available for Use	165,000
Less : Ending Inventory Raw Materials	11,000
Direct Materials Used		154,000
Direct Labour		85,000
Manufacturing Overhead Applied		215,600
Total Manufacturing Costs		454,600
Add: Works in Process Beginning Inventory		49,000
Total Cost of Work in Process		503,600
Less: Work in Process Ending Inventory		39,000
Cost of Goods Manufactured		464,600

Total Manufacturing Costs = Direct Materials Used + Direct Labour Cost + Manufacturing Overheads Applied

Requirement 4

Particulars	Amount
Finishing Goods Beginning Inventory	75,000
Add: Cost of Goods Manufactured	464,600
Goods Available For Sale	539,600
Less: Ending Inventory Finished Goods	60,000
Unadjusted Cost of Goods Sold	479,600

Question 5

Particulars	Amount
Direct Materials	8,000
Direct Labour	19,800
Overhead Applied	11,200
Work in Process	39,000

Overhead Applied = Direct Materials * Predetermined Overhead Rate

Overhead Applied = 8,000 * 140%

Overhead Applied = $ 11,200

Direct Labour = Work in Process - Direct Materials - Overhead Applied

= 39,000 - 8,000 - 11,200

= $ 19,800