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

Starr Company reports the following information for August

Starr Company reports the following information for August.

Raw materials purchased on account	$84,200
Direct materials used in production	$56,400
Factory wages earned (direct labor)	$20,900
Overhead rate	120	% of direct labor cost

Prepare journal entries to record the following events.

1.	Raw materials purchased.
2.	Direct materials used in production.
3.	Direct labor used in production.
4.	Applied overhead.

In December 2014, Shire Computer’s management establishes the 2015 predetermined overhead rate based on direct labor cost

In December 2014, Shire Computer’s management establishes the 2015 predetermined overhead rate based on direct labor cost. The information used in setting this rate includes estimates that the company will incur $888,000 of overhead costs and $600,000 of direct labor cost in year 2015. During March 2015, Shire began and completed Job No. 13-56.

 
 

1.	What is the predetermined overhead rate for year 2015?

2.	Compute the job cost sheet. (Round your answer to the nearest dollar amount.)

Explanation:

2.

Direct materials	$	14,450
Direct labor		3,230
Overhead ($3,230 × 148%)		4,781
Total cost of Job No. 13-56	$	22,461

As of the end of June, the job cost sheets at Racing Wheels, Inc., show the following total costs accumulated on three custom jobs

As of the end of June, the job cost sheets at Racing Wheels, Inc., show the following total costs accumulated on three custom jobs.

	Job 102	Job 103	Job 104
Direct materials	$ 43,000	$ 74,000	$ 47,000
Direct labor	15,000	27,000	39,000
Overhead applied	4,500	8,100	11,700

Job 102 was started in production in May and the following costs were assigned to it in May: direct materials, $15,000; direct labor, $3,700; and overhead, $1,110. Jobs 103 and 104 are started in June. Overhead cost is applied with a predetermined rate based on direct labor cost. Jobs 102 and 103 are finished in June, and Job 104 is expected to be finished in July. No raw materials are used indirectly in June. Using this information, answer the following questions. (Assume this company’s predetermined overhead rate did not change across these months.)

1&2.	Complete the given below table to calculate the cost of the raw materials requisitioned and direct labor cost incurred during June for each of the three jobs?

3.	What predetermined overhead rate is used during June?

4.	How much total cost is transferred to finished goods during June?

Explanation:

1.	The cost of direct materials requisitioned in the month equals the total direct materials costs accumulated on the three jobs less the amount of direct materials cost assigned to Job 102 in May:

Job 102	$	43,000
Less prior costs		(15,000	)	$	28,000
Job 103					74,000
Job 104					47,000
Total materials used (requisitioned)				$	149,000

2.	Direct labor cost incurred in the month equals the total direct labor costs accumulated on the three jobs less the amount of direct labor cost assigned to Job 102 in May:

Job 102	$	15,000
Less prior costs		(3,700	)	$	11,300
Job 103					27,000
Job 104					39,000
Total direct labor				$	77,300

3.

The predetermined overhead rate equals the ratio of the amount of overhead assigned to jobs divided by the amount of direct labor cost assigned to them. Since the same rate is used for all jobs started and completed within a month, the ratio for any one job equals the rate that was applied. This table shows the ratio for jobs 102 and 104:

	Job 102			Job 104
Overhead	$	4,500		$	11,700
Direct labor		15,000			39,000
Ratio		30	%		30	%

Widmer Watercraft’s predetermined overhead rate for year 2015 is 200% of direct labor

Widmer Watercraft’s predetermined overhead rate for year 2015 is 200% of direct labor. Information on the company’s production activities during May 2015 follows.

a.	Purchased raw materials on credit, $200,000.
b.	Materials requisitions record use of the following materials for the month.

Job 136	$	48,500
Job 137		33,000
Job 138		19,600
Job 139		22,600
Job 140		7,200
Total direct materials		130,900
Indirect materials		21,000
Total materials used	$	151,900

c.	Paid $16,000 cash to a computer consultant to reprogram factory equipment.
d.	Time tickets record use of the following labor for the month. These wages were paid in cash.

Job 136	$	12,200
Job 137		10,600
Job 138		37,900
Job 139		39,000
Job 140		4,000
Total direct labor		103,700
Indirect labor		25,000
Total	$	128,700

e.	Applied overhead to Jobs 136, 138, and 139.
f.	Transferred Jobs 136, 138, and 139 to Finished Goods.
g.	Sold Jobs 136 and 138 on credit at a total price of $535,000.
h.	The company incurred the following overhead costs during the month (credit Prepaid Insurance for expired factory insurance).

Depreciation of factory building	$	68,500
Depreciation of factory equipment		36,500
Expired factory insurance		11,000
Accrued property taxes payable		36,000

i.	Applied overhead at month-end to the Work in Process Inventory account (Jobs 137 and 140) using the predetermined overhead rate of 200% of direct labor cost.

Required:
1.	Prepare a job cost sheet for each job worked on during the month.

2.	Prepare journal entries to record the events and transactions a through i.

Explanation:

e.	To apply overhead to jobs: [($12,200 + $37,900 + $39,000) × 200%] = $178,200
f.	To record completion of jobs: ($85,100 + $133,300 + $139,600) = $358,000
(g)2.	To record cost of sales: ($85,100 + $133,300) = $218,400
i.	To apply overhead to jobs: [($10,600 + $4,000) × 200%] = $29,200

3.

Prepare T-accounts for each of the following general ledger accounts, each of which started the month with a zero balance: Raw Materials Inventory, Work in Process Inventory, Finished Goods Inventory, Factory Payroll, Factory Overhead, Cost of Goods Sold. Post the journal entries from Part 2 to the following T-accounts

4.	Prepare a report showing the total cost of each job in process and prove that the sum of their costs equals the Work in Process Inventory account balance. Prepare similar reports for Finished Goods Inventory and Cost of Goods Sold.