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 $120,900 of manufacturing overhead for an estimated allocation base of $93,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	136,000
Direct labor cost	$	89,000
Manufacturing overhead costs:
Indirect labor	$	97,800
Property taxes	$	9,000
Depreciation of equipment	$	20,000
Maintenance	$	15,000
Insurance	$	11,500
Rent, building	$	37,000

	Beginning		Ending
Raw Materials	$	23,000	$	16,000
Work in Process	$	48,000	$	38,000
Finished Goods	$	74,000	$	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 $38,000 ending balance in Work in Process includes $9,000 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) Predetermine overhead rate = 120900/93000 = 130% of direct material used

2) Applied overhead :

Direct material used = 23000+136000-16000 = 143000

Applied overhead = 143000*1.3 = 185900

Actual overhead = 190300

Under applied overhead = 185900-190300 = $4400

3) Schedule of cost of goods manufactured

Direct material used	143000
Direct labor	89000
Applied overhead	185900
Total manufacturing cost	417900
Beginning work in process	48000
Total Cost of work in process	465900
Less: Ending work in process	-38000
Cost of goods manufactured	427900

4) Unadjusted cost of goods sold

Beginning finished goods	74000
Cost of goods manufactured	427900
Cost of goods available for sale	501900
Less Ending finished goods	-60000
Unadjusted cost of goods sold	441900

5) Ending work in process = 38000

Direct material = 9000

Applied overhead = 9000*1.3 = 11700

Direct labor = 38000-9000-11700 = 17300