Adjusting factory overhead LO P4

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 $ 43,000 $ 52,000

Work in process 10,200 21,300

Finished goods 63,000 35,600

Activities and information for May

Raw materials purchases (paid with cash) 210,000

Factory payroll (paid with cash) 345,000

Factory overhead Indirect materials 15,000

Indirect labor 80,000

Other overhead costs 120,000

Sales (received in cash) 1,400,000

Predetermined overhead rate based on direct labor cost 70 %

Determine whether there is over or underapplied overhead. Factory OverheadUnderapplied overhead

26,500 Under applied

Explanation:

Lock-Tite Company

Actual Factory Overhead 215,000

Factory overhead Indirect materials 15,000

Indirect labor 80,000

Other overhead costs 120,000

Direct Labor = 345,000

Predetermined Overhead = 70% of $ 345,000 = $ 241,500

Actual Overhead = $ 215,000

Difference = Predetermined Overhead - Actual Overhead

= 241,500 - $ 215,000 = 26,500 Under applied

We find the difference between actual overhead and applied overhead to find the underapplied (overapplied overhead. If the actual overhead is less than applied overhead it is underapplied. But if the actual overhead is greater than applied overhead it is over applied.

Raw materials Opening $ 43,000

Add Materials Purchases 195000 (210,000 - 15000)

Less Raw materials Closing $ 52,000

Direct Materials Used 186,000

Direct Labor 345,000

FOH 215,000

Total Manufacturing Costs 746,000

Add Work in process Opening 10,200

Less Work in process Closing 21,300

Add Finished goods Opening 63,000

Less Finished goods Closing 35,600

Cost Of Goods Sold 762,300