Question

Gitano Products operates a job-order costing system and applies overhead cost to jobs on production (not on the basis of raw materials purchased). Its predetermined overhead rate was based on a cost formula that estimated $124,600 of manufacturing overhead for an estimated allocation base of $89,000 direct material dollars to be used in production. The basis of direct materials used in the company has provided the following data for the just completed yearPurchase of raw materials 139,000Direct labor cost $85,000Manufacturing overhead costs:Indirect labor $ 127,800Property taxes $8,880Depreciation of equipment $18,000Maintenance $ 12,000Insurance $ 11,300Rent, building $ 40,000Beginning EndingRaw Materials $ 27,000 $ 13,000Work in Process $ 46,000 $36,000Finished Goods $71,000 $56,000Required:1. Compute the predetermined overhead rate for the year2. Compute the amount of underapplied or overapplied overhead for the year3. Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials4. Compute the unadjusted cost of goods sold for the year. Do not include any underapplied or overapplied overhead in your answer5. Assume that the $36,000 ending balance in Work in Process includes $8,000 of direct materials, Given this assumption, supply the information missing below

Answer 1

Answer: Please see answer below

Explanation:

a)Predetermined Overhead rate = Estimated manufacturing overhead/Estimated direct materials cost  x 100

                                     =124,600/89,000 = 1.4 x100 =140%

b) Amount of underapplied or overapplied overhead of the year

we first calculate amount of direct materials

Beginning Raw Materials = 27,000

Purchase Of Raw Materials=139,000

Total Raw Materials =166,000

Ending Raw Materials=$13,000

Direct Materials Used In Production = Total Raw Materials –Ending Raw Materials= 166,000-13,000= 153,000

Direct materials will now be used To Calculate Underapplied Or Overapplied Overhead

Indirect Labour=$127,000

Property Taxes= $8,880

Depreciation On EquipmenT= $18,000

Maintenance= $12,000

Insurance $11,300

Rent, building=$40,000

Total Manufacturing overhead incurred =$217,180

Manufacturing overhead applied or used=140%x 153,000=214,200

Underapplied overhead= 217,180-214,200= $2,980

c)Schedule of cost of Goods Manufactured  for the year

Beginning Raw Materials = $27,000

Purchase Of Raw Materials=$139,000

Total Raw Materials =$166,000

Ending Raw Materials=$13,000

Direct Raw Materials Used In Production = Total Raw Materials –Ending Raw Materials= 166,000-13,000= $153,000

Direct labor cost=$85,000

Manufacturing Overhead =140%X 153,000=$214,200

Total Manufacturing Costs=Direct Raw Materials+ Direct Labor cost+ Manufacturing Overhead

153,000+ 85,000+214,200=$452,200

Cost Of Goods Manufactured= Total Manufacturing Cost+ Work In Progress Beginng  --Work In Progress End = $452,200+$46,000-$36,000=  $462,200

d)Unadjusted cost of goods sold

Finished Goods at Begining  Balance $71,000  

Cost Of Goods Manufactured  =$462,200

Cost of goods for sale=Finished Goods at Begining  Balance + Cost Of Goods Manufactured = $533,200

Unadjusted cost of goods sold = cost of goods sold---ending balance of finished goods=$533,200- $56,000=$477,200

e) Assume that the $36,000 ending balance in Work in Process includes $8,000 of direct materials,  find the manufacting overhead and direct labour.

i)Manufacturing overhead applied on the assumed direct materials=  Direct materials cost x Predetermined overhead rate

= 8,000x 140% = $11,200

ii)Direct labour cost  incurred on the assumed work in progress inventory balance=   Total work in progress--Direct Materials-Manufacturing overhead

                =$36,000-$8,000-$11,200  =$16,800