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 $ 130,000
Direct labor cost $ 88,000
Manufacturing overhead costs:
Indirect labor $ 101,300
Property taxes $ 8,900
Depreciation of equipment $ 15,000
Maintenance $ 12,000
Insurance $ 11,800
Rent, building $ 31,000

Beginning Ending
Raw Materials $ 22,000 $ 17,000
Work in Process $ 45,000 $ 37,000
Finished Goods $ 70,000 $ 55,000

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 $37,000 ending balance in Work in Process includes $8,200 of direct materials. Given this assumption, supply the information missing below:

Explanation / Answer

1) overhead rate = 119600/92000 1.3 2) Overhead applied (135,000*1.3) 175500 Manufacturing overhead cost Indirect labor 101,300 property taxes 8,900 Depreciation of Equipment 15,000 Maintenance 12,000 Insurance 11,800 Rent,Building 31,000 total manufacturing overhead cost 180,000 180,000 overhead under applied 4,500 3) Cost of goods manufactured Direct materials: Raw materials inventory,beginning 22,000 Add:purchases of raw materials 130,000 total raw materials available 152,000 decut:raw materials inventory,ending 17,000 Raw materials used in production 135,000 Direct labor 88,000 manufacturing overhead applied to WIP 175,500 total manufacturing cost 398,500 Add:work in process ,beginning 45,000 443,500 less:work in process, ending 37,000 cost of goods manufactured 406,500 4) cost of goods sold opening finished goods inventory 70,000 Add:Cost of goods manufactured 406,500 total cost of goods available for sale 476,500 less :ending finished goods inventory 55,000 unadjusted cost of goods sold 421,500 5) Direct materials 8,200 Direct labor (balancing) 18,140 overhead applied (8200*1.3) 10660 ending WIP 37,000

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