Moonrise Bakery applies factory overhead based on direct labor costs. The company incurred the following costs during 2015: direct materials costs, $650,000; direct labor costs, $3,000,000; and factory overhead costs applied, $1,800,000.

Moonrise Bakery applies factory overhead based on direct labor costs. The company incurred the following costs during 2015: direct materials costs, $650,000; direct labor costs, $3,000,000; and factory overhead costs applied, $1,800,000.

Explanation:

2.
Factory overhead ($20,000 × 40%) = $12,000

3.

We also know that the total of direct labor costs (X) and factory overhead costs (0.6X) equals $240,000.  Thus, to get the individual amounts we need to solve: [X + 0.6X = $240,000]. The solution is:

Total cost of finished goods inventory = $490,000

Less: Direct materials = 250,000

Direct labor and factory overhead costs = $240,000

Direct labor costs = $150,000

Factory overhead costs = $150,000 × 0.6 = $90,000

The following information is available for Lock-Tite Company, which produces special-order security products and uses a job order costing system.

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	%

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.

 

Explanation:

1.	Cost of direct materials used
	Beginning raw materials inventory	$	43,000
	Plus purchases		210,000
	Raw materials available		253,000
	Less ending raw materials inventory		(52,000	)
	Total raw materials used		201,000
	Less indirect materials used		(15,000	)
	Cost of direct materials used	$	186,000
2.	Cost of direct labor used
	Total factory payroll	$	345,000
	Less indirect labor		(80,000	)
	Cost of direct labor used	$	265,000
3.	Cost of goods manufactured
	Beginning work in process inventory	$	10,200
	Plus direct materials		186,000
	Plus direct labor		265,000
	Plus overhead applied   (70% of direct labor cost)		185,500
	Total cost of work in process		646,700
	Less ending work in process inventory		(21,300	)
	Cost of goods manufactured	$	625,400
4.	Cost of goods sold
	Beginning finished goods inventory	$	63,000
	Plus cost of goods manufactured		625,400
	Less ending finished goods inventory		(35,600	)
	Cost of goods sold	$	652,800
5.	Gross profit
	Sales	$	1,400,000
	Cost of goods sold		(652,800	)
	Gross profit	$	747,200
6.	Actual overhead incurred
	Indirect materials	$	15,000
	Indirect labor		80,000
	Other overhead costs		120,000
	Total actual overhead incurred		215,000
	Overhead applied		185,500
	Underapplied overhead	$	29,500

1.	Raw materials purchases for cash.
2.	Direct materials usage.
3.	Indirect materials usage.

Prepare journal entries for the above transactions for the month of May.

 

Explanation:

2.
Beginning raw materials (43,000) + Raw materials purchased (210,000) - Indirect materials used (15,000) - Ending raw materials (52,000) = $186,000

1.	Direct labor usage.
2.	Indirect labor usage.
3.	Total payroll paid in cash.

Prepare journal entries for the above transactions for the month of May.

 

Explanation:

2.
Direct labor is equal to total payroll (345,000) less Indirect labor (80,000) = $265,000

1.	Incurred other overhead costs (record credit to Other Accounts).
2.	Application of overhead to work in process.

Prepare journal entries for the above transactions for the month of May.

 

Explanation:

Cost of direct labor used
Total factory payroll	$	345,000
Less indirect labor		(80,000)
Cost of direct labor used	$	265,000

Factory overhead: $265,000 × 70% = $185,500.

 Determine whether there is over or underapplied overhead.
 

Explanation:

Cost of direct labor used
Total factory payroll	$	345,000
Less indirect labor		(80,000)
Cost of direct labor used	$	265,000

Factory overhead: $265,000 × 70% = $185,500.

Indirect materials	$	15,000
Indirect labor		80,000
Other overhead costs		120,000
Total actual overhead incurred		215,000
Overhead applied		185,500
Underapplied overhead	$	29,500

Cost of goods manufactured