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 used in production (not on the basis of raw materials purchased). Its predetermined overhead rate was based on a cost formula that estimated $129,000 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:

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.

3a) Compute the unadjusted cost of goods sold for the year. (Do not include any underapplied or overapplied overhead in your cost of goods sold figure.)

3b) Identify the options available for disposing of underapplied or overapplied overhead? (Select all that apply.)

Job 215 was started and completed during the year. What price would have been charged to the customer if the job required $3,300 in direct materials and $4,800 in direct labor cost and the company priced its jobs at 55% above the job’s cost according to the accounting system?

       

Direct materials made up $8,300 of the $39,000 ending Work in Process inventory balance. Supply the information missing below:

Direct material: 24000

Direct labor: ?

Manufactoring overhead: ?

Works in process inventory: 39000

       

Purchase of raw materials $ 132,000   Direct labor cost $ 82,000   Manufacturing overhead costs:      Indirect labor $ 140,200      Property taxes $ 8,200      Depreciation of equipment $ 16,000      Maintenance $ 14,000      Insurance $ 8,700      Rent, building $ 30,000 Gitano Products Schedule of Cost of Goods Manufactured Direct materials Total raw materials available 0 Raw materials used in production 0 Total manufacturing cost 0 Cost of goods manufactured

Explanation / Answer

1) Predetermined OH rate for the year = estimated overhead/estimated allocation base 129000/86000 = 150% 2) Overhead applied = Direct materials consumed * 150%      Direct materials consumed = 25000+132000-15000 = $142000      Overhead applied = 142000*150% = 213,000      Overhead incurred = 140200+8200+16000+14000+8700+30000=217,100      Therefore, OH under applied = 217100 - 213000 = 4,100 (A) 3) Schedule of cost of goods manufactured: Direct Materials: beginning inventory 25000 add; purchases 132000 total raw materials available 157000 less ending inventory 15000 raw materials used in production 142000 direct labor 82000 manufacturing OH applied 217100 total manufacturing cost 441100 add: beginning WIP 49000 490100 less: ending WIP 39000 COST OF GOODS MANUFACTURED 451100 3a) Unadjusted cost of goods sold: beginning finished goods 74000 add: cost of goods manufactured 451100 cost of goods available for sale 525100 less: ending inventory 59000 Cost of goods sold (unadjusted) 466100 3b) *underapplied or overapplied overhead may be allocated among WIP, finished goods and cost of goods sold in proportion to the OH applied. *may be closed directly to cost of goods sold. 4) JOB 215: direct materials 3300 direct labor 4800 mfg OH applied 150% of 3300 4950 cost of production of the job 13050 margin - 55% of cost 7178 Price to customer 20228 5) the question gives two values for material cost-8300 & 24000. worked out for 8300 as it seems appropriate for a total cost of $39000. direct materials 8300 direct labor 18250 mfg OH applied 150% of 8300 12450 ending WIP 39000

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