The following information is available for Lock-Tite Company, which produces spe
ID: 2538869 • Letter: T
Question
The following information is available for Lock-Tite Company, which produces special-order security products and uses a job order costing system.
Determine whether there is over or underapplied overhead.
Prepare the journal entry to allocate (close) overapplied or underapplied overhead to Cost of Goods Sold.
Record entry to allocate (close) underapplied/overapplied overhead to cost of goods sold.
April 30 May 31 Inventories Raw materials $ 51,500 $ 69,000 Work in process 11,900 24,700 Finished goods 71,500 52,600 Activities and information for May Raw materials purchases (paid with cash) 227,000 Factory payroll (paid with cash) 379,000 Factory overhead Indirect materials 32,000 Indirect labor 97,000 Other overhead costs 137,000 Sales (received in cash) 1,570,000 Predetermined overhead rate based on direct labor cost 80 %Explanation / Answer
Direct labour cost incurred dueing the period: Total factory payroll 379000 Lless: Indirect labour 97000 Direct labour cost incurred during the period: 282000 OH applied rate: 80% of labour cost Overheads applied (282,000 *80%) = $225,600 Overheads incurred: Indirect Material 32000 Indirect Labour 97000 Overheads incurred: 137000 Total overheads incurred 266000 Under-applied overheads: Overheads incurred 266000 Less: Overheads applied 225600 Under-applied overheads: 40400 Journal Entry: Cost of Goods sold Account Dr. 40400 Manufacturing overheads 40400
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