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 $800,000 of manufacturing overhead for an estimated allocation base of $500,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

  

Purchase of raw materials	$	510,000
Direct labor cost	$	90,000
Manufacturing overhead costs:
Indirect labor	$	170,000
Property taxes	$	48,000
Depreciation of equipment	$	260,000
Maintenance	$	95,000
Insurance	$	7,000
Rent, building	$	180,000

	Beginning		Ending
Raw Materials	$	20,000	$	80,000
Work in Process	$	150,000	$	70,000
Finished Goods	$	260,000	$	400,000

Required:

1. Compute the predetermined overhead rate as a precentage for the year.

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 $70,000 ending balance in Work in Process includes $24,000 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Answer:
1	Predetermied overhead rate	=Estimated total manufacturing overhead cost /
		Estimated total amount of the allocationbase
		=$800,000/500,000
		160%
4	Cost of goods sold would be calculated as follows:
	Finished goods inventory, beginning	$                    260,000
Add:	Cost of goods manufactured	$                1,340,000
	Goods available for sale	$                1,600,000
Less:	Finished goods inventory, ending	$                 (400,000)
	Cost of goods sold	$                1,200,000
Where,	Cost of goods manucatured is calculated as follows:
	Raw material Inventory, beginning	$                      20,000
	Add: Purchases	$                    510,000
	Total raw material available	$                    530,000
	Less: Raw material Inventory, ending	$                    (80,000)
	Total raw material used in production	$                    450,000
	Raw material used in production	$                    450,000
	Add: Direct labour	$                      90,000
	Add: Manufacturing overhead applied	$                    720,000
	Total manufacturing cost	$                1,260,000
	Add: Work-in-process, beginning	$                    150,000
		$                1,410,000
	Less: Work-in-process, ending	$                    (70,000)
	Cost of goods manufactured	$                1,340,000