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 year

Purchase of raw materials 139,000

Direct labor cost $85,000

Manufacturing overhead costs:

Indirect labor $ 127,800

Property taxes $8,880

Depreciation of equipment $18,000

Maintenance $ 12,000

Insurance $ 11,300

Rent, building $ 40,000

Beginning Ending
Raw Materials $ 27,000 $ 13,000
Work in Process $ 46,000 $36,000
Finished Goods $71,000 $56,000
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

Answer 1

Answer:

1.predetermined overhead rate for the year = $1.40

2.the amount of underapplied or overapplied overhead for the year = $3,780

3.schedule of cost of goods manufactured for the year

Raw Materials ($ 27,000+$139,000 -$ 13,000)        153,000

Direct labor cost                                                          85,000

Applied Overheads                                                    214,200

Add Opening Inventory - Work in Process                46,000

Less Closing Inventory - Work in Process                (36,000)

cost of goods manufactured for the year                462,200

4.the unadjusted cost of goods sold for the year = $477,200

Explanation:

1.predetermined overhead rate for the year

predetermined overhead rate = Budgeted Fixed Overheads / Budgeted Activity

                                                   = $124,600/$89,000

                                                   = $1.40

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

Actual Fixed Overheads > Applied Fixed Overheads = Underapplied

Actual Fixed Overheads < Applied Fixed Overheads = Overapplied

Applied Fixed Overheads = $1.40×($ 27,000+$139,000 -$ 13,000)

                                           = $214,200

Actual Fixed Overheads Calculation :

Indirect labor                     $ 127,800

Property taxes                       $8,880

Depreciation of equipment $18,000

Maintenance                        $12,000

Insurance                              $11,300

Rent, building                     $40,000

Total                                   $217,980

Note that : Actual Fixed Overheads > Applied Fixed Overheads

Therefore we have an Underapplied

Underapplied =  $217,980 - $214,200 = $3,780

3.schedule of cost of goods manufactured for the year

Raw Materials ($ 27,000+$139,000 -$ 13,000)        153,000

Direct labor cost                                                          85,000

Applied Overheads                                                    214,200

Add Opening Inventory - Work in Process                46,000

Less Closing Inventory - Work in Process                (36,000)

cost of goods manufactured for the year                462,200

4.the unadjusted cost of goods sold for the year

Opening Inventory - Finished Goods           $71,000

Add Cost of Goods Manufactured            $462,200

Less Closing Inventory - Finished Goods  ($56,000)

Cost of Goods Sold                                     $477,200