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 $800,000 of manufacturing overhead for an estimated allocation base of $500,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: $ 510,000 $ 90,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 170,000 $ 48,000 $ 260,000 $ 95,000 $ 7,000 $ 180,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 20,000 $80,000 $ 150,000 $ 70,000 $ 260,000 $ 400,000 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 $70,000 ending balance in Work in Process includes $24,000 of direct materials. Given this assumption, supply the information missing below: Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Compute the predetermined overhead rate for the year. Predetermined overhead rate % ( Required 1 Required 2 >

Answer 1

Required 1 :
Predetermined overhead rate = Estimated manufacturing overhead / Estimated direct materials costs = 800000 / 500000	160%

Required 2 :
Beginning raw materials	20000
(+) Purchase of raw materials	510000
Total raw materials available	530000
(-) Ending raw materials	80000
Raw materials used	450000
Overhead applied = Raw materials used * Predetermined overhead rate = 450000 * 160%	720000
Indirect labor	170000
Property taxes	48000
Depreciation of equipment	260000
Maintenance	95000
Insurance	7000
Rent, building	180000
Actual overhead costs	760000
As the overhead applied are less than the actual overhead costs, the overheads are underapplied
Underapplied overhead = Actual overhead costs - Overhead applied = 760000 - 720000	40000

Underapplied

Overhead

40000

Required 3 :
Gitano Products
Schedule of cost of goods manufactured
Direct materials :
Beginning raw materials	20000
Purchase of raw materials	510000
Total raw materials available	530000
Ending raw materials	80000
Raw materials used in production		450000
Direct labor cost		90000
Manufacturing overhead applied		720000
Total manufacturing costs		1260000
Beginning work in process		150000
Total cost of work in process		1410000
Ending work in process		70000
Cost of goods manufactured		1340000

Required 4 :
Cost of goods manufactured	1340000
(+) Beginning finished goods	260000
(-) Ending finished goods	400000
Unadjusted cost of goods sold	1200000

Required 5 :
Direct materials	24000
Direct labor cost ( 70000 - 24000 - 38400 )	7600
Manufacturing overhead ( 24000 * 160% )	38400
Work in process inventory	70000