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 $132,000 of manufacturing overhead for an estimated allocation base of $88,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	134,000
Direct labor cost	$	84,000
Manufacturing overhead costs:
Indirect labor	$	141,100
Property taxes	$	8,600
Depreciation of equipment	$	17,000
Maintenance	$	11,000
Insurance	$	11,300
Rent, building	$	36,000

	Beginning		Ending
Raw Materials	$	25,000	$	12,000
Work in Process	$	50,000	$	36,000
Finished Goods	$	72,000	$	59,000

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 $8,300 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1)	predetermined overhead rate
	Estimated manufacturing overhead/direct materials used
	132,000/88000
	150.00%	answer
	Direct materials used
	Beginning raw materials				25,000
	Add purchase of raw materials				134,000
	Raw materials available for use				159,000
	less ending raw materials				12,000
	Direct materials used				147,000
	Applied overhead 147000*150%=					220500
	Actual manufacturing overhead
	Indirect labor				141,100
	property taxes				8,600
	Depreciation of Equipment				17,000
	Maintenance				11,000
	Insurance				11,300
	Rent,building				36,000
	total actual manufacturing overhead				225,000	225,000
2)	overhead under applied					4,500	answer
3)	Cost of goods manufactured
	Direct materials used
	Beginning raw materials				25,000
	Add purchase of raw materials				134,000
	Raw materials available for use				159,000
	less ending raw materials				12,000
	Direct materials used					147,000
	Add: Direct labor					84,000
	applied manufacturing overhead					220500
	total manufacturing cost					451,500
	Add:Beginning work in process					50,000
						501,500
	less Ending work in process					36,000
	Cost of goods manufactured for the year					465,500	answer
4)	Cost of goods sold
	beginning finished goods inventory					72,000
	Add cost of goods manufactured for the year					465,500
	cost of goods available for used					537,500
	less ending finished goods inventory					59,000
	unadjusted cost of goods sold					478,500	answer

5)	Direct materials					8,300
	Direct labor					15,250
	manufacturing overhead (150% 0f DM)					12450
	Work in process inventory					36,000