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 $110,400 of manufacturing overhead for an estimated allocation base of $92,000 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 $ 88,000

Manufacturing overhead costs:

     Indirect labor $ 85,500

     Property taxes $ 8,800

     Depreciation of equipment $ 18,000

     Maintenance $ 13,000

     Insurance $ 7,900

     Rent, building $ 39,000

	Beginning	Ending
Raw Materials	22,000	13,000
Work in Progress	48,000	36,000
Finished Goods	70,000	57,000

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 $8,800 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) Predetermine Overhead rate= estimated total manufacturing overhead/estimated total amountof the allocation
=110400/92000
1.2
in %=120%
2) computation of direct material used in production
particulars			Amount
Opening raw material			$            22,000.00
Add: raw material purchased			$        1,31,000.00
Total raw material available			$        1,53,000.00
less: closing raw material			$            13,000.00
Raw material used in production			$        1,40,000.00
Calculation of applied manufacturing overhead cost
Applied manufacturing oh cost= ( direct material used in production * predetermine oh rate)
= 140000*120%= 168000
3)Calculation of under applied or over applied cost
particulars			Amount
Indirect labor			$            85,500.00
property tax			$              8,800.00
Depreciation of equipment			$            18,000.00
maintenece			$            13,000.00
insurance			$              7,900.00
rent & building			$            39,000.00
total actual cost				$ 1,72,200.00
less: applied manufacturing oh cost				$ 1,68,000.00
under applied overhead cost				$       4,200.00
Schedule of cost of goods manufactured
opening raw material			$            22,000.00
add: purchased raw material			$        1,31,000.00
total raw material available			$        1,53,000.00
less: closing raw material			$            13,000.00
Raw material used in production				$ 1,40,000.00
Add: Direct Labour				$     88,000.00
Add: manufacturing overhead applied			$        1,68,000.00	$ 1,68,000.00
total manufacturing cost				$ 3,96,000.00
Add: opening WIP				$     48,000.00
less: closing WIP				$     36,000.00
Cost of goods manufactured				$ 4,08,000.00
4)Schedule of cost of goods sold
Particulars			Amount
opening finished goods			$            70,000.00
Add: cost of goods manufactured			$        4,08,000.00
Goods available for sale			$        4,78,000.00
less : closing finished goods			$            57,000.00
unadjusted cost of goods sold			$        4,21,000.00
5) calculation of overheadcost in WIP
Overhead cost in WIP= (Direct material cost*predetermine oh rate)
=8800*120%
10560
Amount of direct labor cost in WIP= (Closing WIP -(direct material cost+manufacturing cost)
=36000-(8800+10560)
16640
Caculation of cost in WIP
THE calculated dirct material is 8800 dirct labour is 16640 and manufaturing overhead is 10560
cost of WIP = (DIRECT MATERIAL +DIRECT LABOUR+MANUFACTURING OVERHEAD)
=8800+16640+10560
36000
THEREFORE THE COST OF WIP = $36000