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 $123,200 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 $130,000
Direct labor cost $84,000
Manufacturing overhead costs:
Indirect labor $110,500
Property taxes $8,100
Depreciation of equipment $19,000
Maintenance $15,000
Insurance $9,400
Rent, building $33,000
Beginning Ending
Raw Materials $21,000 $15,000
Work in Process $46,000 $36,000
Finished Goods $75,000 $58,000
Required:
1-a. Compute the predetermined overhead rate for the year.
1-b. Compute the amount of underapplied or overapplied overhead for the year.
2. Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.
3-a. Compute the unadjusted cost of goods sold for the year. (Do not include any underapplied or overapplied overhead in your cost of goods sold figure.)
3-b. Identify the options available for disposing of underapplied or overapplied overhead? (Select all that apply.)
4. Job 215 was started and completed during the year. What price would have been charged to the customer if the job required $3,600 in direct materials and $4,600 in direct labor cost and the company priced its jobs at 55% above the job’s cost according to the accounting system?

Answer 1

1-a. Predetermined overhead rate for the year.= 1.4

1-b. The underapplied overhead for the year$ 4,600

2. Cost of goods manufactured $ 425,000

3-a.Un adjusted Cost of Goods Sold $ 442,000

3-b. Underapplied or Overapplied overhead Treatment

1) Underapplied overhead may be closed to Cost og goods Sold.

2) It can be separately allocated to WIP , FG and CGS in the proportion of OH applied.

4. Job 215 Price Estimated 155% of $ 13240= $ 20,522

Step-by-step explanation:

1-a. Predetermined overhead rate for the year.

Total Overhead / Direct Material Cost= $123,200 /$88,000= 1.4

1-b. The underapplied or overapplied overhead for the year

Applied OH=Actual Direct Material Cost* Predetermine Rate = $136,000* 1.4= $ 190400

Actual Overhead = $ 195,000

Underapplied Overhead = $ 195,000-$ 190400=$ 4,600

Gitano Products

Cost of goods manufactured Schedule

Raw Materials Beginning $21,000

Add Purchase of raw materials $130,000

Less Raw Materials Ending $15,000

Direct Materials Used $ 136,000

Direct labor cost $84,000

Manufacturing overhead costs: 195,000

Indirect labor $110,500

Property taxes $8,100

Depreciation of equipment $19,000

Maintenance $15,000

Insurance $9,400

Rent, building $33,000

Total Manufacturing Costs $ 415,000

Add Work in Process Beginning $46,000

Cost of goods available for manufacture $ 461,000

Less Work in Process Ending $36,000

Cost of goods manufactured $ 425,000

3-a. Unadjusted cost of goods sold for the year

Cost of goods manufactured $ 425,000

Add Finished Goods Beginning $75,000

Cost of Goods Available for Sale $500,000

Less Finished Goods Ending $58,000

Un adjusted Cost of Goods Sold $ 442,000

3-b. Underapplied or Overapplied overhead Treatment

1) Underapplied overhead may be closed to Cost og goods Sold.

2) It can be separately allocated to WIP , FG and CGS in the proportion of OH applied.

4. Job 215 price

Direct Materials $3,600

Direct Labor $4,600

Applied Overhead ( 1.4 * 3600) = $ 5040

Total Manufacturing Cost = $ 13240

Price Estimated 155% of $ 13240= $ 20,522