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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). All materials are classified as direct materials. 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 in the form of an Excel worksheet:
(c) Compute the Cost of Goods Sold for the year. (Do not include any underapplied or overapplied overhead in your Cost of Goods Sold figure.) What options are available for disposing of underapplied or overapplied overhead?

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The tabulated data in image represents the Cost of Goods Sold for the year and options available for disposing of underapplied or overapplied overhead.

What is predetermined overhead rate ?

  • At the beginning of the accounting period, a predetermined overhead rate is determined by dividing the predicted manufacturing overhead by the anticipated activity base.
  • To make it easier to calculate a product's standard cost, the predetermined overhead rate is therefore used to production.
  • This anticipated overhead rate will assist a business deal with challenges like large - scale operation or variable overhead expenses, like utilities, and will enable it to calculate a cost for the product while having to wait, perhaps for several months, until all actual overhead costs are identified.

The tabulated data in image represents the Cost of Goods Sold for the year and options available for disposing of underapplied or overapplied overhead.

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