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 $ $46,000 10,800 66,000 May 31 58,000 22,500 41,600 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 216,000 357,000 21,000 B6,000 126,000 1,460,000 754 Determine whether there is over or underapplied overhead. Prepare the journal entry to allocate (close) overapplied or underapplied overhead to Cost of Goods Sold.

please help me to correct the question. tks

Answer 1

Answer:

Overhead Absorbtion

Factory Overhead
Actual Overhead	233,000	203,250	Applied Overhead
Underapplied Overhead	29,750

General Journal:

Transaction	General Journal	Debit	Credit
1	Cost of goods sold	29,750
	Factory overhead		29,750
	To allocate overapplied or underapplied overhead to cost of goods sold

Calculation:

First, we need to calculate the Cost of direct labor used. For that we need to deduct the indirect labor from total factory payroll.

Total factory payroll	357,000
Less: indirect labor	-86,000
Cost of direct labor used	271,000

Then, we need to calculate the overhead applied. It is the 75% of the cost of direct labor used.

Overhead applied = $271,000 × 75% = $203,250.

The next step is to calculate the Total actual overhead incurred. It is the sum of indirect materials, indirect labor and other overhead costs. Then we need to deduct the overhead applied from the actual overhead incurred.

Indirect materials	21,000
Indirect labor	86,000
Other overhead costs	126,000
Total actual overhead incurred	233,000
Less: Overhead applied	203,250
Underapplied overhead	29,750