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 $126,000 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 $ 130,000 $ 86,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 111,100 $ 8,600 $ 18,000 $ 15,000 $ 11,200 $ 36,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 26,000 $16,000 $ 46,000 $ 38,000 $ 70,000 $61,000 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 $8,500 of direct materials. Given this assumption, supply the information miccinn helow

Answer 1

1) Predetermine overhead rate = 126000/90000 = 140% of direct material used

2) Applied overhead = 140000*1.4 = 196000

Actual overhead = 199900

Under applied overhead = 199900-196000 = 3900

3) Schedule of cost of goods manufactured

Direct material
Beginning raw material	26000
Raw material purchase	130000
Raw material available for use	156000
Less: Ending raw material	-16000
Direct material used		140000
Direct labor		86000
Manufacturing overhead		196000
Total manufacturing cost		422000
Beginning Work in process		46000
Total Cost of work in process		468000
Less: Ending WIP		-38000
Cost of goods manufactured		430000

Unadjusted cost of goods sold = 70000+430000-61000 = 439000

Calculate following

Direct material	8500
Direct labor	17600
Manufacturing overhead (8500*1.4)	11900
Work in process inventory	38000