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 $800,000 of manufacturing overhead for an estimated allocation base of $500,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: Purchase of raw materials $ 510,000 Direct labor cost $ 90,000 Manufacturing overhead costs: Indirect labor $ 170,000 Property taxes $ 48,000 Depreciation of equipment $ 260,000 Maintenance $ 95,000 Insurance $ 7,000 Rent, building $ 180,000 Beginning Ending Raw Materials $ 20,000 $ 80,000 Work in Process $ 150,000 $ 70,000 Finished Goods $ 260,000 $ 400,000 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 $70,000 ending balance in Work in Process includes $24,000 of direct materials. Given this assumption, supply the information missing below:

Answer 1

Answer:

Required: 1.  Predetermined overhead rate for the year.

Predetermined overhead rate = Budgeted Overhead/ Cost driver

Given :Its predetermined overhead rate was based on a cost formula that estimated $800,000 of manufacturing overhead for an estimated allocation base of $500,000 direct material

Predetermined overhead rate= 800,000/ 500,000= 1.6

2.  Amount of underapplied or overapplied overhead for the year.

Actual Overhead= $ 760,000

Overhead applied= $ 800,000

Over applied Overhead = $ 40,000

3. Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

Cost Of Goods Manufactured  

Beginning  Raw Materials                         $ 20,000

Add Purchase of raw materials                 $ 510,000

Less Ending Raw Materials                        $ 80,000

Direct Materials Used                                    $ 450,000

Direct labor cost                                                $ 90,000

Manufacturing overhead costs:                      $ 760,000

Indirect labor $ 170,000

Property taxes $ 48,000

Depreciation of equipment $ 260,000

Maintenance $ 95,000

Insurance $ 7,000

Rent, building $ 180,000

Total Manufacturing Costs :                             $ 1300,000

Add Beginning Work in Process                       $ 150,000

Less Ending  Work in Process                             $ 70,000

Cost Of Goods Manufactured                              $ 1380,000

Add Beginning Finished Goods                        $ 260,000

Cost Of Goods Available for Sale                       $ 1640,000

Less Ending Finished Goods                             $ 400,000

Cost Of Goods Sold                                           $ 1240,000

4. Compute the unadjusted cost of goods sold for the year. Do not include any underapplied or overapplied overhead in your answer.

Unadjusted Cost Of Goods Sold = $ 1240,000

5. Assume that the $70,000 ending balance in Work in Process includes $24,000 of direct materials. Given this assumption, supply the information missing below:

Cost Of Goods Manufactured  

Beginning  Raw Materials                         $ 44,000

Add Purchase of raw materials                 $ 510,000

Less Ending Raw Materials                        $ 80,000

Direct Materials Used                                    $ 474,000

Direct labor cost                                                $ 90,000

Manufacturing overhead costs:                      $ 760,000

Indirect labor $ 170,000

Property taxes $ 48,000

Depreciation of equipment $ 260,000

Maintenance $ 95,000

Insurance $ 7,000

Rent, building $ 180,000

Total Manufacturing Costs :                             $ 1324,000

Add Beginning Work in Process                       $ 150,000

Less Ending  Work in Process                             $ 46,000

Cost Of Goods Manufactured                              $ 1428,000

Add Beginning Finished Goods                        $ 260,000

Cost Of Goods Available for Sale                       $ 1688,000

Less Ending Finished Goods                             $ 400,000

Cost Of Goods Sold                                           $ 1288,000