The following information is available for Lock-Tite Company, which produces spe

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.

Journal entry worksheet

Note: Enter debits before credits.

Record entry to allocate (close) underapplied/overapplied overhead to cost of goods sold

April 30 May 31 Inventories Raw materials $ 47,500 $ 61,000 Work in process 11,100 23,100 Finished goods 67,500 44,600 Activities and information for May Raw materials purchases (paid with cash) 219,000 Factory payroll (paid with cash) 363,000 Factory overhead Indirect materials 24,000 Indirect labor 89,000 Other overhead costs 129,000 Sales (received in cash) 1,490,000 Predetermined overhead rate based on direct labor cost 75 %

Explanation / Answer

Actual overhead:    Indirect materials 24000    Indirect labor 89000    Other overhead costs 129000    Total actual overhead incurred 242000 Overhead applied = (363000-89000)*75%= $205500 Factory overhead Actual overhead 242000 205500 Applied overhead Underapplied overhead 36500 Transaction Journal Debit Credit 1 Cost of goods sold 36500        Factory overhead 36500

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