Question

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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	$	26,000			$	56,000
Work in process		9,700				20,700
Finished goods		62,000				33,500
Activities and information for May
Raw materials purchases (paid with cash)						192,000
Factory payroll (paid with cash)						250,000
Factory overhead
Indirect materials						15,000
Indirect labor						57,500
Other overhead costs						115,500
Sales (received in cash)						1,300,000
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

Cost of direct materials used:
		Raw materials
Date			Debit	Date			Credit
Beginning balance			26000	Direct materials used			147000
Cash purchase			192000	(Balancing figure)
				Indirect materials			15000
				Ending balance			56000
			218000				218000
Cost of direct materials used=$ 147000
Cost of direct labor used:
		Factory payroll
Date			Debit	Date			Credit
Cash paid			250000	Indirect labor			57500
				Direct labor			192500
				(Balancing figure)
			250000				250000
Cost of direct labor used=$ 192500
Cost of goods manufactured:
		Work In process
Date			Debit	Date			Credit
Beginning balance			9700	Cost of goods manufactured			434375
Direct materials used			147000	(Balancing figure)
Direct labor			192500	Ending balance			20700
Factory overhead applied
(Direct labor*55%)		(192500*55%)	105875
			455075				455075
Cost of goods manufactured=$ 434375
Cost of goods sold:
		Finished goods
Date			Debit	Date			Credit
Beginning balance			62000	Cost of goods sold			462875
Cost of goods manufactured			434375	(Balancing figure)
				Ending balance			33500
			496375				496375
Cost of goods sold=$ 496375
Gross profit=Sales-Cost of goods sold=1300000-462875=$ 837125
Overapplied or underapplied overhead:
		Factory overhead
Date			Debit	Date			Credit
Indirect materials			15,000	Factory overhead applied			105875
Indirect labor			57,500	Underapplied overhead			82,125
Other overhead costs			115,500	(Balancing figure)
			188,000				188,000
Factory overhead applied < Factory overhead incurred
Hence,factory overhead is said to be underapplied.
Underapplied overhead=188000-105875=$ 82125