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 $ 32,000 $ 46,000 Work in process 9,900 20,700 Finished goods 52,000 33,700 Activities and information for May Raw materials purchases (paid with cash) 176,000 Factory payroll (paid with cash) 200,000 Factory overhead Indirect materials 9,000 Indirect labor 46,000 Other overhead costs 110,500 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.

Cost of direct materials used.

Cost of direct labor used.

Cost of goods manufactured.

Cost of goods sold.*

Gross profit.

Overapplied or underapplied overhead.

Prepare journal entries for the above transactions for the month of May.

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.

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.

1.Incurred other overhead costs (record credit to Other Accounts).

2.Applied overhead to work in process.

Answer 1

ANS :-

1) T. Accounts for the month of May for calculating the given requirements are shown as follows:-

Raw Materials (RM)
RM-April 30	32000	153,000	Direct Materials used (Bal fig)
Raw Materials purchases	176000	9,000	Indirect Materials
RM-May 31	46,000

Therefore cost of direct materials used is $153,000 ($32,000+$176,000-$46,000-$9,000) (Balancing Figure).

2) Direct Labor used is calculated as a balancing figure in Factory Payroll Account which is shown as follows:-

Factory Payroll
Cash	200,000	154,000	Direct Labor used
		46,000	Indirect Labor

3)

Work in Process (WIP)
WIP-April 30	9,900	380,900	Cost of goods manufactured (Bal. fig.)
Direct Materials used	153,000
Direct Labor used (from Factory Payroll)	154,000
Overhead Applied (154,000*55%)	84,700
WIP-May 31	20,700

Cost of goods manufactured is $380,900 ($9,900+$153,000+$154,000+$84,700-$20,700).

4) Cost of goods sold will be calculated from Finished Goods Account which is shown as follows:-

Finished Goods (FG)
FG-April 30	52,000	380,900	Cost of goods sold (Bal. fig.)
Cost of goods manufactured	380,900
FG-May 31	33,700

Cost of goods sold = FG-April 30+Cost of goods manufactured-FG-May 31

= $52,000+$380,900-$33,700 = $380,900

5) Calculation of Gross Profit (Amounts in $)

Income Statement (Partial)
Sales	1,600,000
Less: Cost of goods sold	(380,900)
Gross Profit	1,219,100

6) Calculation of Underapplied or Overapplied Overhead (Amounts in $)

Factory Overhead
Indirect Materials	9,000
Indirect Labor	46,000
Other Overhead Costs	110,500
		84,700	Overhead Applied (from req 3)
Under applied OH (Bal fig)	80,800

Under applied Overheads = Indirect materials+Indirect Labor+Other OH-Overhead Applied

= $9,000+$46,000+$110,500-$84,700 = $82,300

Prepare journal entries for the above transactions for the month of May

No	account and explanation	debit	credit
1	Raw material	176000
	Cash		176000
	(To record raw material purchase)
2	Work in process (162000-9000)	153000
	Raw material		153000
	(To record direct material usage)
3	Manufacturing overhead	9000
	Raw material		9000
	(To record indirect material usage)

Prepare journal entries for the above transactions for the month of May.

No	account and explanation	debit	credit
1	Work in process (200000-33700)	166300
	Wages payable		166300
	(To record direct labor)
2	Manufacturing overhead	33700
	Wages payable		33700
	(To record indirect labor)
3	Wages payable	200000
	Cash		200000
	(To record cash payment for total labor)

Prepare journal entries for the above transactions for the month of May.

No	Transaction	General journal	debit	credit
1	1	Factory overhead	110500
		Other accounts		110500
2	2	Work in process inventory (200000-46000)*55%	84700
		Factory overhead		84700