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 $119,600 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 Direct labor cost Manufacturing overhead costs $ 137,000 $ 88,000 Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building $ 102,500 $8,700 $17,000 $11,000 $ 10,200 $39,000 Beginning Ending Raw Materials Work in Process Finished Goods $ 22,000 17,000 47,00e 40,000 73,000 $ 56,000 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 $40,000 ending balance in Work in Process includes $8,600 of direct materials. Given this assumption, supply the information missing below

Explanation / Answer

Req 1. Pre-determined OH rate: Estimated OH/ Direct material cost *100 119600 /92000*100 =130% Req 2: Raw material consumed: Begnning raw material inventory 22000 Add: Purchases 137000 Less: Ending inventory raw material -17000 Raw material consumed: 142000 Oh applied (130% of $ 142,000) 184600 Actual oh incurred 188400 (102,500+8700+17000+11000+10200+39000) Under-applied overheads 3800 (Actual OH-applied OH) Req 3: SCHEDULE OF GOODS MANUFACTURED Direct material Beginning raw material inventory 22000 Add: Purchases 137000 Total Goods of raw material available 159000 Less: Ending inventory raw material -17000 Material consumed 142000 Direct labour 88000 OH applied 184600 Total Manufacturing cost 414600 Add: Beginning WIP 47000 Total cost of goods in manufacturing 461600 Less: Ending inventory of WIP 40000 Total cost of goods manufactured 421600 Req 4: SCEHDULE SHOWING COST OF GOODS SOLD Cost of goods manufactured 421600 Add: Beginning Finished Goods inventory 73000 Total cost of goods available for sale 494600 Less: Ending inventory of Finished Goods 56000 Total cost of goods sold unadjusted 438600 Req 5: Ending balance of WIP 40000 Less: material 8600 Less: OH applied (8600*130%) 11180 Labor cost 20220 Direct material 8600 Labour 20220 OH applied 11180 WIP ending balance 40000

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