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 $121,800 of manufacturing overhead for an estimated allocation base of $87,000 direct material dollars to be used in production. The company has provided the following data for the just completed year: Purchase of raw materials $ 137,000 Direct labor cost $ 83,000 Manufacturing overhead costs: Indirect labor $ 115,100 Property taxes $ 8,700 Depreciation of equipment $ 20,000 Maintenance $ 14,000 Insurance $ 9,400 Rent, building $ 38,000
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
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.
Gitano Products operates a
| Purchase of raw materials | $ | 137,000 |
| Direct labor cost | $ | 83,000 |
| Manufacturing overhead costs: | ||
| Indirect labor | $ | 115,100 |
| Property taxes | $ | 8,700 |
| $ | 20,000 | |
| Maintenance | $ | 14,000 |
| Insurance | $ | 9,400 |
| Rent, building | $ | 38,000 |
| Beginning | Ending | |||
| Raw Materials | $ | 22,000 | $ | 16,000 |
| Work in Process | $ | 49,000 | $ | 39,000 |
| Finished Goods | $ | 74,000 | $ | 56,000 |
Required:
1. Compute the predetermined overhead rate for the year.
2. Compute the amount of underapplied or overapplied overhead for the year.
3. Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.
4. Compute the unadjusted cost of goods sold for the year. Do not include any underapplied or overapplied overhead in your answer.
5. Assume that the $39,000 ending balance in Work in Process includes $8,700 of direct materials. Given this assumption, supply the information missing below:
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