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
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.
5) Identify the options available for disposing of underapplied or overapplied overhead?
6) Job 215 was started and completed during the year. What price would have been charged to the customer if the job required $8,500 in direct materials and $2,700 in direct labor cost and the company priced its jobs at 25% above the job's cost according to the accounting system?
7) Direct materials made up $24,000 of the $70,000 ending Work in Process inventory balance. Supply the information missing below:
Beginning Ending
Raw Materials $20,000 $80,000
Work in Process $150,000 $70,000
Finished Goods $260,000 $400,000

Answer 1

Answer:

Gitano Products

1. Predetermined overhead rate

= $1.60

2. Overapplied overhead for the year

= $40,000

3. Schedule of Cost of Goods Manufactured for the year:

Direct raw materials                      $510,000

Direct labor cost                             $90,000

Manufacturing overhead costs:   $760,000

Cost of Goods Manufactured   $1,360,000

4. Unadjusted Cost of Good Sold for the year:

Direct raw materials                       $510,000

Direct labor cost                              $90,000

Manufacturing overhead applied $800,000

Cost of Goods Sold                     $1,400,000

5) The overapplied overhead can be deducted from the adjusted Cost of Goods Sold to arrive at a cost of goods sold that is equal to $1,360,000.  If there were inventories, the overapplied overhead can be allocated to the cost of goods sold, finished goods inventory, and work in process.

6) Job 215:

Direct materials       $8,500

Direct labor                2,700

Overhead                 13,600 ($1.60 * $8,500)

Total cost              $24,800

Markup  25%            6,200

Price to customer $31,000

7)                        Beginning            Ending

Raw Materials       $20,000       $80,000

Work in Process  $150,000       $70,000

Finished Goods $260,000     $400,000

If direct materials made up $24,000 of the $70,000 ending Work in Process inventory balance, then the balance is made up of $7,600 direct labor and $38,400 Overhead.  The overhead = $24,000 * $1.60 = $38,400.  The direct labor = $70,000 - ($24,000 + 38,400) = $7,600.

Explanation:

Estimated Manufacturing overhead = $800,000

Estimated direct materials = $500,000

Computation of Predetermined overhead rate

= $800,000/$500,000

= $1.60 per direct material

b) Data

Actual Expenses:

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

Total overhead                    $760,000

Total manufacturing cost $1,360,000

c) Computation of Overapplied overhead:

Estimated overhead minus actual overhead

= $800,000 - $760,000

= $40,000