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 $139,500 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: $ 132,000 Ş 89,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 146,100 $ 8,500 $ 20,000 $ 11,000 $ 7,300 $ 31,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 28,000 $ 13,000 $ 50,000 $ 35,000 $ 68,000 $ 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 $35,000 ending balance in Work in Process includes $8,100 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) Predetermine OH rate = 139500/93000 = 150% of direct material used

2) Direct material used = 28000+132000-13000 = 147000

Applied overhead = 147000*1.5 = 220500

Actual overhead = 146100+8500+20000+11000+7300+31000 = 223900

Under applied overhead = 223900-220500 = 3400

3) Schedule of cost of goods manufactured

Direct materials
Beginning raw material	28000
Raw material purchase	132000
Raw material available	160000
Less: Ending raw material	-13000
Raw material used in production		147000
Direct labor		89000
Applied overhead		220500
Total manufacturing costs		456500
Beginning work in process		50000
Total Cost of work in process		506500
Less: Ending work in process		-35000
Cost of goods manufactured		471500

4) Unadjusted cost of goods sold = 68000+471500-61000 = 478500

5) Calculate following

Direct material	8100
Direct labor	14750
Manufacturing overhead (8100*1.5)	12150
Work in process inventory	35000