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 $117,600 of manufacturing overhead for an estimated allocation base of $84,000 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	$	80,000
Manufacturing overhead costs:
Indirect labor	$	132,800
Property taxes	$	8,400
Depreciation of equipment	$	19,000
Maintenance	$	12,000
Insurance	$	11,500
Rent, building	$	39,000

	Beginning		Ending
Raw Materials	$	30,000	$	13,000
Work in Process	$	45,000	$	36,000
Finished Goods	$	70,000	$	62,000

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 $36,000 ending balance in Work in Process includes $8,900 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Solution 1:

Predetermined overhead rate = Estimated Overhead / Estimated Direct materials used = $117,600 / $84000 = 140%

Solution 2:

Actual Direct Materials used = Beginning raw material + Purchases of raw material - ending raw materials

= $30,000 + $$139,000 - $13,000 = $156,000

Applied manufacturing Overhead = $156,000*140% = $218,400

Actual Manufacturing Overhead incurred = $132800+$8400+$19000+$12000+$11500+$39000 = $222,700

Under-applied overhead = Actual Overhead - Applied overhead = $222,700 - $218,400 = $4,300 (under-applied)

Solution 3:

Gitano Products
Schedule of cost of goods manufactured
Direct Material:
Raw Material, Beginning	$30,000.00
Add: Purchase of Raw Material	$1,39,000.00
Total Raw material available	$1,69,000.00
Less: Raw Material, Ending	$13,000.00
Raw material used in production		$1,56,000.00
Direct Labor cost		$80,000.00
Applied Manufacturing Overhead		$2,18,400.00
Total Manufacturing Costs		$4,54,400.00
Add: Work in Process, Beginning		$45,000.00
Subtotal		$4,99,400.00
Less: Work in Process, Ending		$36,000.00
Cost of goods manufactured		$4,63,400.00

Gitano Products
Computation of Unadjusted cost of goods sold
Cost of goods manufactured	$4,63,400.00
Add: Finished Goods, Beginning	$70,000.00
Total Goods available for sale	$5,33,400.00
Less: Finished Goods, Ending	$62,000.00
Unadjusted Cost of goods Sold	$4,71,400.00

Solution 5:

Ending Balance in work in process = $36,000

Direct materials included in ending Balance of WIP = $8,900

Overhead included in ending Balance of WIP = $8,900 *140% = $12,460

Direct labor included in ending Balance of WIP = $36000 - $8900 - $12460 = $14,640