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 $ $48,800 11,200 68,000 62,000 23,300 45,600 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 220,000 365,000 25,000 90,000 130,000 1,500,000 80% Determine whether there is over or underapplied overhead. Prepare the journal entry to allocate (close) overapplied or underapplied overhead to Cost of Goods Sold.

Answer 1

Ans. 1	To calculate the over or under applied overhead, we need to find out the value of
	actual and applied overhead.
	*Calculations for direct labor cost:
	Particulars	Amount
	Factory payroll	$365,000
	Less: Indirect labor	-$90,000
	Direct labor cost	$275,000
	Overhead applied   = Direct labor cost * Predetermined overhead rate
	$275,000 * 80%
	$220,000
	*Calculation for total actual factory overhead:
	Particulars	Amount
	Indirect materials	$25,000
	indirect labor	$90,000
	Other overhead costs	$130,000
	Total factory overhead (actual)	$245,000
	If the applied overhead is less than the Actual overhead
	it means that the overhead is under applied.
	Factory overhead
	Particulars	Amount	Particulars	Amount
	Actual overhead	$245,000	Applied overhead	$220,000
			Under applied overhead	$25,000
		$245,000		$245,000
Ans. 2	Journal entry to record the under applied overhead:
	Particulars	Debit	Credit
	Cost of goods sold	$25,000
	Factory overhead		$25,000
	(To record the allocation of under applied overhead)