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 $117,000 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: $ 86,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 113,200 $ 8, 100 $ 17,000 $ 15,000 $ 8,500 $ 35,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 25,000 $ 12,000 $ 48,000 $ 36,000 69,000 $ 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 $9,000 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Solution:

1) Predetermine overhead rate = 117,000*100/90,000 = 130% of direct material used

2)

Indirect labor	113,200
Property tax	8,100
Deperciation of equipment	17,000
Maintenance	15,000
Insurance	8,500
Rent building	35,000
Total acutal cost	196,800

Direct material used = 25,000+136,000 - 12,000 =149,000

Applied overhead = 149,000*130% =193,700

Under applied overhead = 193,700 - 196,800 =3,100

3) Prepare as schedule of cost of goods manufactured for the year. Assume all raw materials ar used in production as direct materials

Direct materials
Beginning raw materials	25,000
Purchase	136,000
Less: Ending raw materials	-12,000
Direct materials used		149,000
Direct labor		86,000
Manufacturing overhead		193,700
Total manufacturing cost		428,700
Beginning work in process		48,000
Total cost of work in process		476,700
Less: Ending work in process		-36,000
Cost of goods manufactured		440,700

4) Unadjusted cost of goods sold = 69,000 + 440,700 -57,000 = 452,700

5)Missing amount

Ending balance in work in process	36,000
Direct material	9,000
Overhead(9,000 * 130%)	11,700
Direct labor(36,000-9,000-11,700)	15,300