Problem #4: 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.) In computing a predetermined overhead rate at the beginning of the year, the company's estimates were: manufacturing overhead cost, $800,000; and direct materials to be used in production, $500,000. The company has provided the following data: Raw materials Work in Process Finished Goods Required: Beginning $20,000 The following actual costs were incurred during the year: Purchase of direct raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation equipment Maintenance Insurance Rent- Building 150,000 260,000 Ending $80,000 70,000 400,000 $510,000 90,000 170,000 48,000 260,000 95,000 7,000 180,000
Problem #4: 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.) In computing a predetermined overhead rate at the beginning of the year, the company's estimates were: manufacturing overhead cost, $800,000; and direct materials to be used in production, $500,000. The company has provided the following data: Raw materials Work in Process Finished Goods Required: Beginning $20,000 The following actual costs were incurred during the year: Purchase of direct raw materials Direct labor cost Manufacturing overhead costs: Indirect labor Property taxes Depreciation equipment Maintenance Insurance Rent- Building 150,000 260,000 Ending $80,000 70,000 400,000 $510,000 90,000 170,000 48,000 260,000 95,000 7,000 180,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Variance Analysis
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Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Please answer the last subpart, number 4 (highlighted in red)

Transcribed Image Text:1. Prepare the statement of cost of goods manufactured for the year.
Statement of cost of goods manufactured:
Direct material
Beginning material
Raw material purchase
Raw material available for use
Less; Ending raw material
Raw material used in production
Direct labor
Applied overhead
Total manufacturing cost
Beginning work in process
Total cost of work in process
Less; Ending work in process
Cost of goods manufactured
$20,000
$510,000
$530,000
-$80,000
$450,000
$90,000
$720,000
$1,260,000
$150,000
$1,410,000
-$70,000
$1,340,000
2. Compute the Cost of Goods Sold for the year. (Do not include the under- or over-applied overhead in the
cost of goods sold.) What options are available for disposing of under- or over-applied overhead?
Unadjusted cost of goods sold= Beginning finished goods inventory + Cost of goods manufactured - Ending
finished goods inventory
= $260000+$1340000-$400000
= $1200000
The under applied overhead can be adjusted by cost of goods sold.
3. Job 215 was started and completed during the year. What price would have been charged to 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 to absorb period cost as well as provide for profit?
Price charged = (Direct materials + Direct labor + Manufacturing overhead)*(1+25%)
= ($8500 + $2700 + $8500*160%) * ( 125%)
= $31000
4. If direct materials made up $24,000 of the ending work in process inventory balance. How much is the
direct labor cost and the manufacturing overhead?

Transcribed Image Text:Problem #4:
Gitavo 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.) In computing a predetermined
overhead rate at the beginning of the year, the company's estimates were: manufacturing overhead cost,
$800,000; and direct materials to be used in production, $500,000. The company has provided the following
data:
Raw materials
Work in Process
Finished Goods
Manufacturing overhead costs:
Indirect labor
Property taxes
The following actual costs were incurred during the year:
Purchase of direct raw materials
Direct labor cost
Depreciation- equipment
Maintenance
Insurance
Rent - Building
Beginning
$20,000
= (20000+510000-80000)*1.6
= $720000
150,000
260,000
Actual overhead = $760000
Under applied overhead = $760000 - $720000
= $40,000
5
Ending
$80,000
70,000
400,000
$510,000
90,000
Required:
1.
a. Compute the predetermined overhead rate for the year
Overhead rate = Total manufacturing overhead / total direct materials used
= $800000/$500000
= 160% of direct material used
170,000
48,000
260,000
95,000
7,000
180,000
b. Compute the amount of under- or over-applied overhead for the year.
Direct material used during the year = Beginning raw material inventory + Raw material purchases -
Ending raw material inventory
Applied overhead = Direct material used during the year * Predetermined overhead rate
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