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 $110,500 of manufacturing overhead for an estimated allocation base of $85,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Purchase of raw materials	$	137,000
Direct labor cost	$	81,000
Manufacturing overhead costs:
Indirect labor	$	110,300
Property taxes	$	8,100
Depreciation of equipment	$	18,000
Maintenance	$	13,000
Insurance	$	11,100
Rent, building	$	37,000

	Beginning		Ending
Raw Materials	$	27,000	$	15,000
Work in Process	$	49,000	$	36,000
Finished Goods	$	73,000	$	57,000

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 $36,000 ending balance in Work in Process includes $8,600 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) Predetermine overhead rate = 110500/85000 = 130% of direct material used

2) Direct material used = 27000+137000-15000 = 149000

Applied overhead = 149000*1.3 = 193700

Actual overhead = 110300+8100+18000+13000+37000+11100 = 197500

Under applied overhead = 193700-197500 = $3800

3) Schedule of cost of goods manufactured

Beginning Raw material	27000
Raw material purchase	137000
Less: Ending raw material	-15000
Direct material used		149000
Direct labor		81000
Manufacturing overhead		193700
Total manufacturing Cost		423700
Beginning Work in process		49000
Total Cost of work in process		472700
Less: Ending work in process		-36000
Cost of goods manufactured		436700

4) un adjusted cost of goods sold = 73000+436700-57000 = 452700

5) Ending balance of work in process = 36000

Direct material = 8600

Overhead = 8600*1.3 = 11180

Direct labor = 16220