Question

WalkLikeYou, Corp. is a specialty athletic shoe manufacturer which uses a job order costing system. The following information below is given for WalkLikeYou:

As of January 31 As of February 28
Inventory account balances:
Raw materials inventory $42,000 $30,000
Work in process inventory $9,200 $20,600
Finished goods $56,000 $33,500
Additional information for the month ended February 28:
Raw materials purchased $198,000
Factory payroll $150,000
Actual factory overhead costs:
Indirect materials $15,000
Indirect labor $34,500
Other overhead costs $13,500
Sales $1,100,000
Predetermined overhead rate (based on direct labor costs) = 55% of DL costs
Compute the following amounts for the month of February. You must show all of your work, either using formulas or using T-accounts.
a. Cost of direct materials used.
b. Total manufacturing costs.
c. Cost of goods manufactured.
d. Cost of goods sold.(ignore effects of underapplied / overapplied overhead)
e. Gross profit.
f. Overapplied or underapplied overhead.

Answer 1

a. $195,000

b. $423,525

c. $412,125

d. $434,625

e. $665,375

f. $525 over-applied

Step-by-step explanation:

a. Cost of direct materials used.

Cost of direct materials used = Opening Materials Inventory + Materials Purchase - Ending Materials Inventory - Indirect materials

= $42,000 + $198,000 - $30,000 - $15,000

= $195,000

b. Total manufacturing costs.

Total manufacturing costs = Variable Manufacturing Costs + Fixed Manufacturing Costs

Total manufacturing costs calculation

Direct materials $195,000

Direct Labor ($150,000 - $34,500) $115,500

Indirect materials $15,000

Indirect labor $34,500

Other overhead costs - applied ($115,500 x 55%) $63,525

Total Cost $423,525

c. Cost of goods manufactured.

Cost of goods manufactured = Opening Work In Process + Total manufacturing costs - Closing Work In Process

= $9,200 + $423,525 - $20,600

= $412,125

d. Cost of goods sold.

Cost of goods sold = Opening Finished Goods Inventory + Cost of goods manufactured - Closing Finished Goods Inventory

= $56,000 + $412,125 - $33,500

= $434,625

e. Gross profit.

Gross profit = Sales - Cost of goods sold

= $1,100,000 - $434,625

= $665,375

f. Overapplied or underapplied overhead

If Actual Overheads > Applied Overheads, we have under-applied overheads

and

If Applied Overheads > Actual Overheads, we have over-applied overheads

where,

Actual Overheads = $15,000 + $34,500 + $13,500 = $63,000

Applied Overheads = $63,525

Over-applied overheads = Applied Overheads - Actual Overheads

= $63,525 - $63,000

= $525