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 $120,400 of manufacturing overhead for an estimated allocation base of $86,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	132,000
Direct labor cost	$	82,000
Manufacturing overhead costs:
Indirect labor	$	122,700
Property taxes	$	8,300
Depreciation of equipment	$	17,000
Maintenance	$	14,000
Insurance	$	8,000
Rent, building	$	32,000

	Beginning		Ending
Raw Materials	$	23,000	$	14,000
Work in Process	$	45,000	$	40,000
Finished Goods	$	71,000	$	60,000

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 $40,000 ending balance in Work in Process includes $8,300 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) predetermined OH rate = Estimated Manufacturing OH/estimated Direct material used

=$120,400/86,000

=$1.4per direct material cost

2) Actual Overhead applied = Actual Direct material used*Predetermined OH rate

Actual DM used = Beginning DM+Purchase--ending DM

=$23,000+$132,000-14,000

=$141,000

(over)underapplied oH = Actual Overhead -APplied Overhead

Actual OH = $122700+$8300+$17000+$14000+$8000+$32000

=$202,000-($1.4*141,000)

=$202,000-$197,400

=$4,600 under applied [ As the actual OH is> applied overhead, overhead was underapplied]

3) cost of goods manufactured

Raw material, beginning	$23,000
Purchase of raw material	$132,000
Total raw material available	$155,000[23,000+132,000]
Raw material, ending	-$14,000
Direct material used		$141,000
Direct labor cost		$82,000
Manufacturing overhead applied		$197,400
Total manufacturing cost		$420,400
Work in process beginning		$45,000
Work in process ending		($40,000)
Cost of goods manufactured		$425,400[$420,400+45,000-40,000]

4) COST OF GOOD SOLD

= Beginning Finished goods+cost of goods Manufactured-ending Finished goods

$71,000+$425,400-60,000

=$436,400

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