Gitano Products operates a job-order costing system and applies overhead cost to

Question

Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct materials usea 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: Purchase of raw materials Direct labor cost Manufacturing overhead costs: $ 510,000 $ 90,000 Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building s 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

Explanation / Answer

working:

overhead rate = estimated overhead / estimated basis i.e materials in this case

=>$800,000 / 500,000

=>1.60 times of materials

so when 24,000 is the amount of materials

24,000 *1.60 =>38,400 is manufacturing overhead.

direct labour = work in process inventory - direct materials - manufacturing overhead

=>70,000 - 24,000-38,400

=>

Direct materials $24,000 direct labour $7,600 manufacturing overhead $38,400 work in process inventory $70,000

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