Question

Required information (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. May 31 $ 49,000 20,000 34,000 April 30 Inventories Raw materials $ 40,000 Work in process 9,600 Finished goods 55,000 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 190,000 250,000 6,000 57,500 112,000 1,300,000 558 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. *Do not consider any underapplied or overapplied overhead. Raw Materials (RM) Work in Process (WIP) Finished Goods (FG) Factory Overhead 0 Income statement (partial)

Answer 1

Answer -

Information Given -

	April 30	May 31
Inventories	-	-
Raw materials	$40000	$49000
Work in process	$9600	$20000
Finished goods	$55000	$34000
Activities and information for May	-	-
Raw materials purchases (paid with cash)	-	$190000
Factory payroll (paid with cash)	-	$250000
Factory overhead	-	-
Indirect materials	-	$6000
Indirect labor	-	$57500
Other overhead costs	-	$112000
Sales (received in cash)	-	$1300000
Predetermined overhead rate based on direct labor cost	-	55%

.

Step - (1) - Cost of direct materials used -

= Raw materials (April 30) + Purchases - Raw materials (May 31) - Indirect materials

= $40000 + $190000 - $49000 - $6000

= $175000

Raw Materials (RM)
RM - April 30	$40000	-	-
RM purchases	$190000	-	-
-	-	$6000	Indirect materials
-	-	$175000 [As per step - (1)]	DM used
RM - May 31	$49000	-	-

.

Step - (2) - Cost of direct labor used -

= Factory payroll - Indirect labor

= $250000 - $57500

= $192500

.

Step - (3) - Cost of goods manufactured -

Applied factory overhead = Direct labor * Overhead rate

= $192500 [As per step - (2)] * 55%

= $105875

Therefore, Cost of goods manufactured -

= Direct materials used + Direct labor + Applied factory overhead + Work in process (April 30) - Work in process (May 31)

= $175000 [As per step - (1)] + $192500 [As per step - (2)] + $105875 + $9600 - $20000

= $462975

Work in Process (WIP)
WIP- April 30	$9600	-	-
DM used	$175000	-	-
DL used	$192500	$462975 [As per step - (3)]	Cost of goods manufactured
Overhead applied	$105875	-	-
WIP- May 31	$20000	-	-

.

Step - (4) - Cost of goods sold -

= Cost of goods manufactured + Finished goods (April 30) - Finished goods (May 31)

= $462975 [As per step - (3)] + $55000 - $34000

= $483975

Finished Goods (FG)
FG - April 30	$55000		-
Cost of goods manufactured	$462975		-
-		$483975 [As per step - (4)]	Cost of goods sold
FG - May 31	$34000	-	-

.

Step - (5) - Gross profit -

= Sales - Cost of goods sold

= $1300000 - $483975

= $816025

Income statement (partial)
Sales	$1300000
Cost of goods sold	$483975
Gross profit	$816025 [As per step - (5)]

.

Step - (6) - Overapplied or (Underapplied) overhead -

Actual overhead = Indirect materials + Indirect labor + Other factory overhead

= $6000 + $57500 + $112000

= $175500

Therefore, Overapplied or (Underapplied) overhead -

= Applied overhead - Actual overhead

= $105875 [Refer step - (3) for calculations] - $175500

= ($69625)

The overhead is underapplied by $69625.

Factory Overhead
Indirect materials	$6000	$105875	Overhead applied
Indirect labor	$57500	-	-
Other overhead costs	$112000	-	-
Underapplied OH	$69625 [As per step - (6)]	-	-