Question

Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of the direct materials uses in production (not on the basis of raw materials). Its predetermined overhead rate was based on a cost formula that estimated $126,000 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 $138,000

Direct Labor Cost $86,000

Manufacturing Overhead Costs:

Indirect Labor $122,600

Property Taxes $8,900

depreciation of equipment $15,000

Maintenance $15,000

Insurance $10,000

Rent, building $35,000

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Beginning Raw materials $21,000  ... Ending Raw Materials $14,000

B Work in Process $48,000.... E Work in Process $37,000

B Finished Goods $74,000... E Finished Goods $62,000

Required

1. Compute the predetermined Overhead Rate for the Year. ?

2. Compute the amount of underapplied or overapplied 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 overhead in your answer?

5. Assume that the $37,000 ending balance in work process includes $8,200 of direct materials. Given this assumption, supply the information missing below:

Direct Materials ?

Direct Labor?

Manufacturing overhead?

work in process inventory?

Answer 1

Answer 1
Predetermined overhead rate for the year = Estimated manufacturing overheads / Direct Material dollar to be used
Predetermined overhead rate for the year = $126000 / $90000 = 140% of direct material dollar used
Answer 2
The amount of underapplied or overapplied Manufacturing overhead for the year
Direct Material used = Beginning Raw materials + Direct Material purchased - Ending Raw Materials
Direct Material used = $21000 + $138000 - $14000 = $1,45,000
Manufacturing overhead applied = 140% of direct material used = 140% * $145000 = $2,03,000
Actual Manufacturing Overhead incurred
Indirect Labor			$122,600
Property Taxes			$8,900
depreciation of equipment			$15,000
Maintenance			$15,000
Insurance			$10,000
Rent, building			$35,000
Actual Manufacturing Overheads			$206,500
Under applied manufacturing overheads = Actual - Applied = $206500 - $203000 = $3500
Answer 3
A schedule of cost of goods manufactured for the year.
Direct Material Used			$145,000
Direct Labour			$86,000
Manufacturing Overhead applied			$203,000
Total Cost of manufacturing			$434,000
Add : Beginning WIP			$48,000
Less : Ending WIP			$37,000
Cost of goods Manufactured			$445,000
Answer 4
Unadjusted cost of goods sold for the year.
Cost of goods manufactured			$445,000
Add : Beginning Finished Goods			$74,000
Less : Ending Finished Goods			$62,000
Unadjusted Cost of goods sold			$457,000
Answer 5
Ending balance of Work in process is bifurcated as under
Direct Materials			$8,200
Direct labour			$17,320
Manufacturing Overheads [140% of $8200]			$11,480
Work in process inventory			$37,000