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 $117,000 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	$	131,000
Direct labor cost	$	86,000
Manufacturing overhead costs:
Indirect labor	$	104,600
Property taxes	$	8,300
Depreciation of equipment	$	17,000
Maintenance	$	13,000
Insurance	$	10,100
Rent, building	$	36,000

	Beginning		Ending
Raw Materials	$	23,000	$	12,000
Work in Process	$	46,000	$	38,000
Finished Goods	$	72,000	$	58,000

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 $38,000 ending balance in Work in Process includes $8,000 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1 Predetermined overhead rate for the year:

A	Estimated manufacturing overhead	$117,000
B	Estimated cost of direct material to be used in production	$90,000
C=A/B	Predetermined overhead rate (per $ of direct material used)	$1.30

2.Amount of under applied/over applied Overhead:

Manufacturing overhead costs:
Indirect labor	$	104,600
Property taxes	$	8,300
Depreciation of equipment	$	17,000
Maintenance	$	13,000
Insurance	$	10,100
Rent, building	$	36,000
TOTAL OVERHEAD COST	$	189,000

A	Beginning raw material inventory	$23,000
B	Purchase	$131,000
C=A-B	Total Raw materials available	$154,000
D	Ending raw material inventory	$12,000
E=C-D	Raw material used in production	$142,000
F	Overhead rate(per $ of raw material used)	$1.30
G=E*F	Applied overhead	$        184,600
H	Actual overhead	$        189,000
I=H-G	Underapplied Overhead	$            4,400

3. Schedule of cost of goods manufactured during the year:

	COST OF GOODS MANUFACTURED
A	Raw materials cost	$142,000
B	Direct labor cost	$86,000
C	Manufacturing overhead	$        184,600
D=A+B+C	Total amount added to work in process	$412,600
E	Beginning work in process	$46,000
F=D+E	Total work in process	$458,600
G	Ending work in process	$38,000
H-F-G	Cost of goods manufactured	$420,600

4. Unadjusted cost of goods sold:

	COST OF GOODS SOLD
A	Cost of goods manufactured	$420,600
B	Beginning finished goods inventory	$72,000
C=A+B	Total finished goods available	$492,600
D	Ending finished goods inventory	$58,000
E=C-D	Cost of goods sold	$434,600