The following information is available for Lock-Tite Company, which produces special-order security products and uses a job order costing system

The following information is available for Lock-Tite Company, which produces special-order security products and uses a job order costing system.

  

	April 30		May 31
Inventories
Raw materials	$	39,000	$	54,000
Work in process		9,400		20,100
Finished goods		55,000		34,500
Activities and information for May
Raw materials purchases (paid with cash)				180,000
Factory payroll (paid with cash)				340,000
Factory overhead
Indirect materials				10,000
Indirect labor				75,000
Other overhead costs				91,000
Sales (received in cash)				1,400,000
Predetermined overhead rate based on direct labor cost				55	%

Compute the following amounts for the month of May using T-accounts.

1.	Cost of direct materials used.
2.	Cost of direct labor used.
3.	Cost of goods manufactured.
4.	Cost of goods sold.*
5.	Gross profit.
6.	Overapplied or underapplied overhead.

 
 

*Do not consider any underapplied or overapplied overhead.

Explanation:

1.	Cost of direct materials used
	Beginning raw materials inventory	$	39,000
	Plus purchases		180,000
	Raw materials available		219,000
	Less ending raw materials inventory		(54,000	)
	Total raw materials used		165,000
	Less indirect materials used		(10,000	)
	Cost of direct materials used	$	155,000
2.	Cost of direct labor used
	Total factory payroll	$	340,000
	Less indirect labor		(75,000	)
	Cost of direct labor used	$	265,000
3.	Cost of goods manufactured
	Beginning work in process inventory	$	9,400
	Plus direct materials		155,000
	Plus direct labor		265,000
	Plus overhead applied (55% direct labor cost)		145,750
	Total cost of work in process		575,150
	Less ending work in process inventory		(20,100	)
	Cost of goods manufactured	$	555,050
4.	Cost of goods sold
	Beginning finished goods inventory	$	55,000
	Plus: Cost of goods manufactured		555,050
	Less ending finished goods inventory		(34,500	)
	Cost of goods sold	$	575,550
5.	Gross profit
	Sales	$	1,400,000
	Cost of goods sold		(575,550	)
	Gross profit	$	824,450
6.	Actual overhead incurred
	Indirect materials	$	10,000
	Indirect labor		75,000
	Other overhead costs		91,000
	Total actual overhead incurred		176,000
	Overhead applied		145,750
	Underapplied overhead	$	30,250

1.	Raw materials purchases for cash.
2.	Direct materials usage.
3.	Indirect materials usage.

 
 

Prepare journal entries for the above transactions for the month of May.

Explanation:

Beginning raw materials (39,000) + Raw materials purchased (180,000) - Indirect materials used (10,000) - Ending raw materials (54,000) = $155,000

1.	Direct labor usage.
2.	Indirect labor usage.
3.	Total payroll paid in cash.

Prepare journal entries for the above transactions for the month of May.

Explanation:

Direct labor is equal to total payroll (340,000) less Indirect labor (75,000) = $265,000

1.	Incurred other overhead costs (record credit to Other Accounts).
2.	Application of overhead to work in process.

Prepare journal entries for the above transactions for the month of May.

Explanation:

Cost of direct labor used
Total factory payroll	$	340,000
Less indirect labor		(75,000)
Cost of direct labor used	$	265,000

  
 

Factory overhead: 265,000 × 55% = $145,750.

Determine whether there is over or underapplied overhead.

Prepare the journal entry to allocate (close) overapplied or underapplied overhead to Cost of Goods Sold.

Explanation:

Cost of direct labor used
Total factory payroll	$	340,000
Less indirect labor		(75,000)
Cost of direct labor used	$	265,000

Factory overhead: 265,000 × 55% = $145,750.

Indirect materials	$	10,000
Indirect labor		75,000
Other overhead costs		91,000
Total actual overhead incurred		176,000
Overhead applied		145,750
Underapplied overhead	$	30,250