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			$	38,000
Work in process		10,000				20,700
Finished goods		69,000				33,900
Activities and information for May
Raw materials purchases (paid with cash)						174,000
Factory payroll (paid with cash)						150,000
Factory overhead
Indirect materials						10,000
Indirect labor						34,500
Other overhead costs						90,500
Sales (received in cash)						1,100,000
Predetermined overhead rate based on direct labor cost						55	%

Exercise 15-7 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

COST SHEET FOR THE PERIOD

PARTICULAR	DETAILS	$
DIRECT MATERIAL CONSUMED		168000
Opening stock of raw materials	32000
Add: Raw material purchases	174000
Less: Closing stock of raw material	-38000
DIRECT LABOR		150000
PRIME COSTS		318000
Factory Overheads		135000
GROSS WORKS COSTS		453000
Add: opening work-in-progress	10000
Less: Closing work-in-progress	-20700
COST OF PRODUCTION		442300
Add: opening stock of finished goods	69000
Less: Closing stock of finished goods	-33900
COST OF GOODS SOLD		477400
Add: GROSS PROFIT		6,22,600
SALES		11,00,000

T-ACCOUNTS OF THESE CAN EASILY BE MADE NOW, AS YOU NOW KNOW HOW THESE VALUES ARE CALCULATED.

Moreover,

Actual costs of overheads = 135,000

Applied costs of overheads = 55% of direct labor = 55% of 150,000 = 82,500

Hence,

MANUFACTURING OVERHEADS ACCOUNT

DEBIT	CREDIT
Actual costs	Applied costs
135000	82,500
	52,500

A credit balance in manufacturing overhead account means OVER-APPLIED OVERHEADS.

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