Question

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	$	27,000			$	51,000
Work in process		9,200				20,700
Finished goods		66,000				34,500
Activities and information for May
Raw materials purchases (paid with cash)						197,000
Factory payroll (paid with cash)						150,000
Factory overhead
Indirect materials						13,000
Indirect labor						34,500
Other overhead costs						118,000
Sales (received in cash)						1,100,000
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.

Answer 1

1) Cost of Direct material used
Particulars				Amount
Beginning Raw material inventory				27000
add: Raw material purchase				197000
Total Raw material available for use				224000
less: ending raw material inventory				51000
Total cost of raw used In production				173000
less: cost of indirect material				13000
cost of direct material used				160000
2) Cost of Direct labor used
Particulars				Amount
Total factory payroll				150000
less: Indirect labor				34500
cost of direct labor used				115500
3) Cost of goods manufactured
Particulars				amount
Beginning WIP				9200
Add: Cost of direct material used				160000
cost of direct labour used				115500
overhead applied 55%				63525
total manufacturing cost				348225
less: WIP ending				20700
Cost of goods manufactured				327525
4) Cost of goods sold
Particulars				amount
Beginning finished goods inventory				66000
add: cost of goods manufactured				327525
total cost of goods available for sale				393525
less: finished goods inventory ending				34500
cost of goods sold				359025
5) Gross Profit
Gross profit = Sale -Cost of goods sold
Gross profit = 1100000-359025 = 740975
6) Overapplied or underapplied overhead
Actual overhead cost incurred
Indirect material cost				13000
indirect labor cost				34500
other overhead cost				118000
Actual overhead cost incurred				165500
Applied overhead = 55%of 115500 = 63525
Under applied overhead = 165500-63525
Under applied overhead = 165500-63525
Under applied overhead = 101975