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 $111.800 of manufacturing overhead for an estimated allocation base of $86,000 direct material dollars to be used in production. The company has provided the following data for the just completed year. $ 134,000 $ 82,000 Purchase of raw materials Direct labor cost Manufacturing overhead costs Indirect labor Property tax Depreciation of equipment Maintenance Insurance Rent, building $ 107,500 $ 8,300 $ 18,000 $ 12,000 $ 8,900 $ 31,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 20,000 $ 14,000 $ 48,000 $ 38,000 $ 72,000 $ 58,000 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 $8,700 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) Predetermine overhead rate = 111800/86000 = 130% of direct material used

2) Applied overhead = (20000+134000-14000)*1.3 = 182000

Actual overhead = 107500+8300+18000+12000+8900+31000 = 185700

Under applied overhead = 185700-182000 = 3700

3) Schedule of cost of goods manufactured

Direct material
Beginning Raw material	20000
Material purchase	134000
Raw material available for use	154000
Less: Ending raw material	-14000
Direct material used		140000
Direct labor		82000
Overhead (140000*1.3)		182000
Total manufacturing cost		404000
Beginning WIP		48000
Total cost of WIP		452000
Less: Ending WIP		-38000
Cost of goods manufactured		414000

3) Unadjusted cost of goods sold = 72000+414000-58000 = 428000

4) Calculate following

Direct material	8700
Direct labor	17990
Overhead (8700*1.3)	11310
Total	38000