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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	$	31,000			$	30,000
Work in process		9,500				18,200
Finished goods		54,000				34,000
Activities and information for May
Raw materials purchases (paid with cash)						197,000
Factory payroll (paid with cash)						200,000
Factory overhead
Indirect materials						17,000
Indirect labor						46,000
Other overhead costs						112,500
Sales (received in cash)						2,000,000
Predetermined overhead rate based on direct labor cost						55	%

Exercise 15-7 Cost flows in a job order costing system LO P1, P2, P3, P4

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

Cost of direct materials used.

Cost of direct labor used.

Cost of goods manufactured.

Cost of goods sold.*

Gross profit.

Overapplied or underapplied overhead.

  

Raw Materials (RM) Work in Process (WIP) April 30 31,000 17,000 Indirect materials April 30 9,500 335,000 Cost of goods manuf. RM purchases 197,000 181,000 DM used DM used 181,000 DL used 154,000 Overhead applied 87,175 May 31 30,000 May 31 96,675 Finished Goods (FG) Factory Overhead April 30 54,000 Indirect materials 17,000 Cost of goods manuf. Indirect labor 46,000 Cost of goods sold Other overhead costs 112,500 May 31 54,000 46,000 Overhead applied Underapplied OH 129,500

	Income statement (partial) Sales $2,000,000 Cost of goods sold Gross profit $2,000,000

Answer 1

Question - 1

Cost of Raw material used = 181,000

Beginning Bal	31000	17000	Factory OH
Cash	197000	181000	Work in Process
			(DM Used )
Ending Balance	30000

Question - 2

Cost of direct labor used. = 154,000

	Direct Labour
Cash	200000	46000	Factory OH ( Indirect)
		154000	Work in process

Question - 3

Cost of goods manufactured = 411,000

	Work in process
Beginning	9500	411000	Cost of goods Manuf
DM Used	181000
DL used	154000
Factory OH applied	84700
Ending Balance	18200

Cost of goods sold ( unadjusted ) = 431,000

	Finished Goods
Beginning Balance	54000
Cost of good Manuf	411000	431000	Cost of goods sold
Ending Balance	34000

Question - 5

Under applied OH = 90800

	Factory Overhead
Indirect Materials	17000	84700	WIP ( OH applied )
Indirect Labor	46000
Other Overheads	112500
Underapplied OH	90800

Question - 4

Gross profit, can be determined on the basis of Unadjusted cost of goods sold. But general practice is to use adjusted cost of goods sold after adding underapplied OH to it.

Cost of goods sold ( adjusted ) = 431000 + 90800 = 521800

Income statement (partial)
Sales	2000000
(-) Cost of goods sold	521800
Gross profit	1478200