Gitano Products operates a job-order costing system and applies overhead cost to

Question

Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct materials usea 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 Direct labor cost Manufacturing overhead costs: $ 510,000 $ 90,000 Indirect labor Property taxes Depreciation of equipment Maintenance Insurance Rent, building s 170,000 $ 48,000 $ 260,000 $ 95,000 $7,000 $ 180,000 Raw Materials Work in Process Finished Goods Beginning Ending $ 20,000 $ 80,000 $ 150,000 $ 70,000 $ 260,000 400,000

Explanation / Answer

(800000/500000)*100 1 Predetermined Overhead rate 160 % 2 Actual manufacturing overhead Incurred: Indirect labor 170000 Property taxes 48000 Depreciation of Equipment 260000 Maintenance 95000 Insurance 7000 Rent, Building 180000 Total actual manufacturing overhead 760000 Raw material used in Production 450000 (20000+510000-80000) Overhead Applied 720000 Underapplied Overhead $40,000 3 Schedule of cost of goods manufactured Direct materials: Beginning Raw material 20000 Purchase of raw material 510000 Total raw material available 530000 Less: Closing raw material 80000 Raw materials used in Production 450000 Direct labor cost 90000 Manufacturing overhead applied 720000 Total manufacturing costs 1260000 Add: Opening WIP 150000 1410000 Less: Closing WIP 70000 Costs of goods manufactured 1340000 4 Unadjusted cost of goods sold 1200000 (1340000+260000-400000)

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