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	$	34,000			$	30,000
Work in process		9,900				19,500
Finished goods		70,000				34,500
Activities and information for May
Raw materials purchases (paid with cash)						187,000
Factory payroll (paid with cash)						250,000
Factory overhead
Indirect materials						13,000
Indirect labor						57,500
Other overhead costs						109,000
Sales (received in cash)						1,600,000
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

Answer of Part 1:

Raw Materials Available = Beginning Raw Material Inventory + Purchases
Raw Materials Available = $34,000 + $187,000
Raw Materials Available = $221,000

Total Raw Material Used = Raw Materials Available – Ending Raw Material Inventory
Total Raw Material Used = $221,000 - $30,000
Total Raw Material Used = $191,000

Cost of Direct Materials Used = Total Raw Material Used – Indirect Materials Used
Cost of Direct Materials Used = $191,000 - $13,000
Cost of Direct Materials Used = $178,000

Answer of Part 2:

Cost of Direct Labor Used = Total Factory Payroll – Indirect Labor
Cost of Direct Labor Used = $250,000 - $57,500
Cost of Direct Labor Used = $192,500

Answer of Part 3:

Total Cost of Work in Process = Beginning Work in Process Inventory + Direct Materials + Direct Labor + Overhead Applied
Total Cost of Work in Process = $9,900 + $178,000 + $192,500 + $192,500*55%
Total Cost of Work in Process = $9,900 + $178,000 + $192,500 + $105,875
Total Cost of Work in Process = $486,275

Cost of Goods Manufactured = Total Cost of Work in Process – Ending Work in Process Inventory
Cost of Goods Manufactured = $486,275 - $19,500
Cost of Goods Manufactured = $466,775

Answer of Part 4:

Cost of Goods Sold = Beginning Finished Goods Inventory + Cost of Goods Manufactured – Ending Finished Goods Inventory
Cost of Goods Sold = $70,000 + $466,775 - $34,500
Cost of Goods Sold = $502,275

Answer of Part 5:

Gross Profit = Sales – Cost of Goods sold
Gross Profit = $1,600,000 - $502,275
Gross Profit = $1,097,725