Question

Required information Use the following information to answer questions The following information applies to the questions displayed below.] 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 $ $26, eee 9,409 52,000 49,000 19,500 34,400 Inventories Raw materials Work in process Finished goods Activities and information for May Raw materials purchases (paid with cash) Factory payroll (paid with cash) Factory overhead Indirect materials Indirect labor Other overhead costs Sales (received in cash) Predetermined overhead rate based on direct labor cost 190,000 150,000 9,000 34,500 96,500 1,700,00 55% Exercise 19-7 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. 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

Answer 1

Job order costing is used when the company produces different kinds of products. This costing is used to assign production costs to a certain job order. An example of a company using job order costing is the production of custom-made equipment.

Question 1: Let us compute the cost of direct materials used.

   RAW MATERIALS(RM)

RM(April 30) 26,000 Indirect Materials 9,000

RM Purchased 190,000 RM used 158,000

RM(May 31) 49,000

Cost of direct materials used = Raw materials (April 30) + Purchases - Raw materials (May 31) - Indirect materials
Cost of direct materials used = $26,000 + $190,000 - $49,000 - $9,000= $158,000

The cost of direct materials used is $158,000.

Question 2: Let us compute the cost of direct labor used. Direct labor are salary of employees working directly to manufacture the product.

DIRECT LABOUR(DL)

Factory Payroll 150,000 34,500 Indirect Labour

115,500 DL used

Cost of direct labor used = Factory payroll - Indirect labor
Cost of direct labor used = $150,000 - $34,500 = $115,500
The cost of direct labor used is $115,500.

Question 3: Let us compute the applied factory overhead and Cost of Goods Manufactured

Applied factory overhead = Direct labor x Overhead rate

Applied factory overhead = $115,500 x 55% = $63,525
Next, we can compute the cost of goods manufactured. We use the applied overhead because the actual cost incurred will only be determined once the production is finished.

Cost of goods manufactured = Direct materials used + Direct labor + Applied factory overhead + Work in process (April 30) - Work in process (May 31).
Cost of goods manufactured = $158,000 + $115,500 + $63,525 + $9,400 - $19,500 = $326,925
The cost of goods manufactured is $326,925.

WORK IN PROGRESS(WIP)

WIP(April 30) 9,400 326,925 Cost of goods manufactured

DM used 158,000

DL used 115,500

OH applied 63,525

WIP(May 31) 19,500

Question 4: Let us compute the cost of goods sold.

Cost of goods sold = Cost of goods manufactured + Finished goods (April 30) - Finished goods (May 31)
Cost of goods sold = $326,925 + $52,000 - $34,400 = $344,525
The cost of goods sold is $344,925.

  FINISHED GOODS(FG)

FG(April 30) 52,000 344,925 Cost of Goods Sold

Cost of Goods manf. 326,925

FG(May 31) 34,400

Question 5: Let us compute the Gross Profit.

  INCOME STATEMENT(Partial)

Sales 1,700,000

Cost of Goods Sold 344,925

Gross Profit 1,355,075

Gross profit = Sales - Cost of Goods Sold

Question 6:Let us compute the actual overhead.

FACTORY OVERHEAD
Indirect Materials 9,000 63,525 Overhead Applied

Indirect Labour 34,500
Other Overhead Costs 96,500 76,475 Overapplied OH

Actual overhead = Indirect materials + Indirect labor + Other factory overhead
Actual overhead = $9,000 + $34,500 + $96,500 = $140,000
The difference between the applied overhead and the factory overhead is the over-applied or under-applied overhead.

Overapplied (Underapplied) overhead = Applied overhead - Actual overhead
Overapplied (Underapplied) overhead = $63,525 - $140,000 = ($53,850)
The overhead is overapplied by $76,475.