Question

Problem 3-14 Schedule of Cost of Goods Manufactured; Overhead Analysis [LO3-3, LO3-4]

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 $114,400 of manufacturing overhead for an estimated allocation base of $88,000 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	$	84,000
Manufacturing overhead costs:
Indirect labor	$	114,800
Property taxes	$	8,100
Depreciation of equipment	$	19,000
Maintenance	$	14,000
Insurance	$	7,400
Rent, building	$	31,000

	Beginning		Ending
Raw Materials	$	21,000	$	12,000
Work in Process	$	47,000	$	40,000
Finished Goods	$	71,000	$	58,000

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 $8,800 of direct materials. Given this assumption, supply the information missing below:

Answer 1

1) Predetermine overhead rate = 114400/88000 = 130% of material

2) Applied overhead = (21000+137000-12000)*1.3 = 189800

Actual overhead = 194300

Under applied overhead = 194300-189800 = 4500

3) Schedule of cost of goods manufactured

Direct material used
Beginning raw material	21000
Raw material purchase	137000
Raw material available for use	158000
Less: Ending raw material	-12000
Material used		146000
Direct labor		84000
Manufacturing overhead		189800
Total manufacturing cost		419800
Beginning work in process		47000
Total Cost of work in process		466800
Less: Ending work in process		-40000
Cost of goods manufactured		426800

4) Schedule of cost of goods sold

Beginning finished goods	71000
Cost of goods manufactured	426800
Cost of goods available for sale	497800
Less: Ending finished goods	-58000
Cost of goods sold	439800

5) Calculate following

Ending work in process	40000
Direct material	8800
Direct labor (40000-8800-11440)	19760
Overhead (8800*1.3)	11440