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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 :
Beginning
Ending
Raw materials
$20,000
$80,000
Work in Process
150,000
70,000
Finished Goods
260,000
400,000
The following actual costs were incurred during the year:
Purchase of direct raw materials
$510,000
Direct labor cost
90,000
Manufacturing overhead costs:
Indirect labor
170,000
Property taxes
48,000
Depreciation- equipment
260,000
Maintenance
95,000
Insurance
7,000
Rent – Building
180,000
Required:
1. a. Compute the predetermined overhead rate for the year
b.Compute the amount of under- or over-applied overhead for the year.
II. Manufacturing overhead applied per unit
$ 800,000 / $ 500,000
= $ 1.60
MOH applied for the year
$ 20,000+510,000-80000
= $ 450,000
Actual Manufacturing overhead:
Indirect Labor
$170,000
Property Tax
$48,000
Insurance Expense
$7,000
Depreciation – Factory equipment
$260,000
Maintenance
$95,000
Rent – Building
$180,000
Total
$ 760,000
Under-applied MOH
$ 720,000 – 760,000
-$ 40,000
1. Prepare the statement of cost of goods manufactured for the year.
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?
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?
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?
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