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 $128,800 of manufacturing overhead for an estimated allocation base of $92,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: Purchase of raw materials $ 133,000 Direct labor cost $ 88,000 Manufacturing overhead costs: Indirect labor $ 122,100 Property taxes $ 8,400 Depreciation of equipment $ 20,000 Maintenance $ 16,000 Insurance $ 12,000 Rent, building $ 32,000 Beginning Ending Raw Materials $ 29,000 $ 14,000 Work in Process $ 47,000 $ 38,000 Finished Goods $ 73,000 $ 59,000 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 $8,300 of direct materials. Given this assumption, supply the information missing below:

Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

	Gitano Products Schedule of Cost of Goods Manufactured Direct materials: Total raw materials available Raw materials used in production Total manufacturing costs Cost of goods manufactured

Compute the unadjusted cost of goods sold for the year. Do not include any underapplied or overapplied overhead in your answer.

	Unadjusted cost of goods sold

Assume that the $38,000 ending balance in Work in Process includes $8,300 of direct materials. Given this assumption, supply the information missing below:

	Direct materials Direct labor Manufacturing overhead Work in process inventory $0

Answer 1

1
Estimated manufacturing overhead	128800
Divide by estimated direct materials	92000
Predetermined overhead rate	140%
2
Indirect labor	122100
Property taxes	8400
Depreciation of equipment	20000
Maintenance	16000
Insurance	12000
Rent, building	32000
Total Manufacturing overhead costs	210500
Total Actual Manufacturing overhead costs	210500
Less: Manufacturing overhead applied to work in process	207200		=148000*140%
Underapplied overhead	3300
3
Schedule of Cost of Goods Manufactured
Direct materials:
Beginning Raw materials inventory	29000
Add: Purchases of raw materials	133000
Total raw materials available	162000
Less: Ending Raw materials inventory	14000
Raw materials used in production		148000
Direct labor cost		88000
Manufacturing overhead applied to work in process		207200	=148000*140%
Total manufacturing costs		443200
Add: Beginning Work in process inventory		47000
		490200
Less: Ending Work in process inventory		38000
Cost of goods manufactured		452200
4
Finished goods inventory, beginning	73000
Add: Cost of goods manufactured	452200
Cost of Goods available for sale	525200
Less: Finished goods inventory, ending	59000
Unadjusted Cost of goods sold	466200
5
Direct materials	8300
Direct labor	18080		=38000-8300-11620
Manufacturing overhead	11620		=8300*140%
Work in process inventory	38000