Question

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 $48,000 $62,000
Work in process 11,200 23,300
Finished goods 68,000 45,600
Activities and information for May Raw materials purchases (paid with cash) 220,000
Factory payroll (paid with cash) 365,000
Factory overhead Indirect materials 25,000
Indirect labor 90,000
Other overhead costs 130,000
Sales (received in cash) 1,500,000
Predetermined overhead rate based on direct labor cost 80%
Determine whether there is over or underapplied overhead.

Answer 1

$25,000

Explanation:

The computation of over or underapplied overhead is shown below:-

Actual Overhead Cost Incurred

Indirect Material Cost $25,000

+ Indirect Labor Cost $90,000

+ Other Variable overhead Cost $130,000

Total Actual Overhead Cost $245,000

Overhead Applied = 80% of Direct Labor Cost

= 80% × Total Factory Payroll-Indirect Labor

=80% × ($365,000 - $90,000)

= $220,000

Under applied Overhead = Actual Overhead - Applied Overhead

= $245,000 - $220,000

= $25,000