Gitano Products operates a job-order costing system and applies overhead cost to jobs on the… 1 answer below »

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



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






Rent – Building



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


Property Tax


Insurance Expense


Depreciation – Factory equipment




Rent – Building



$ 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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