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 $112,800 of manufacturing overhead for an estimated allocation base of $94,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	131,000
Direct labor cost	$	90,000
Manufacturing overhead costs:
Indirect labor	$	82,300
Property taxes	$	9,000
Depreciation of equipment	$	18,000
Maintenance	$	12,000
Insurance	$	9,800
Rent, building	$	35,000

	Beginning		Ending
Raw Materials	$	22,000	$	18,000
Work in Process	$	45,000	$	36,000
Finished Goods	$	70,000	$	56,000

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 $8,300 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Q1) Predetermined overhead rate = 112800 / 94000 = $ 1.20 per dollar of material used

Q 2) Under applied overhead = 4100

Actual Manufactured Overhead Incurred	166100
Overhead applied = 1.20 * 135000	162000
Under applied overhead	4100

Q3) Schedule of cost of goods manufactured

Raw material purchased	131000
(+) Beginning raw mateial Inventory	22000
Available to use	153000
(-) Ending raw material Inventory	18000
Raw material used in production	135000
Direct labor cost	90000
Manufacturing overhead applied	162000
(+) Beginning work in process	45000
(-) Ending wok in process	36000
Cost of goods manufactured	171000

Question - 4

Cost of goods manufactured	171000
(+) Finished goods	70000
Available for sale	241000
(-) Ending balance of finished goods	56000
Cost of goods sold	185000

Question - 5

Missing value Direct labor = 17740

Material	8300
Direct labor = (36000 -8300-9960)	17740
Overhead = 8300 * 1.20	9960
Ending WIP Inventory	36000