a) Use the Direct Labor costs used in the journal entry in Ic. (Direct Labor only!!!) Multiply this number by 1.4 and again by 77% (0.77). We will assume these numbers are total budgeted/estimated overhead costs and budgeted/estimated direct labor costs. DL from 1c Budgeted Amounts $154,000 x 1.4 = $215,600 Budgeted DL costs in dollars $154,000 x 0.77 = $118,580 Budgeted Overhead in dollars b) The table examines the impact of using 3 different predetermined overhead rates using 3 different drivers: direct labor dollars, direct labor hours and machine hours. Complete table below using the directions underneath. Green and yellow highlighted cells should include amounts used in a) above. Complete all other pale blue cells in the table. Factory Overhead method comparisons Using DL $s Using DL hours Using Machine Hours 1) Budgeted Overhead in dollars $118,580 $118,500 $118,500 /215,600 10,000 14,000 ii) Budgeted or Estimated driver amount DL hours Machine hours iii) Predetermined overhead rate 0.55 11.86 8.47 iv) Actual driver values *$150,000 7,800 DL hours 13,800 hours v) Applied factory overhead $84,700 $92,508 $116,886 vi) Actual Overhead Costs vii) over/(under) applied factory overhead amount $84,300 $76,492 $52,114 viii) Over or Under-applied? under under under Include the Budgeted Overhead in dollars (calculated in 5a table) in ALL three columns. Calculate the over- or under-applied overhead and include it in the table (include label) for all 3 columns. ii) Include the Budgeted Direct Labor costs in dollars (calculated in 5a table). Direct Labor is the driver represented in the first column. Direct Labor hours and Machine Hours are the drivers represented in the next two columns. Both the budgeted/estimated drivers and the actual driver amounts are provided for you in the last two columns. iii) Calculate the predetermined overhead rate for each column by dividing the budgeted overhead dollars (top row) by the budgeted driver amount (2 row). The rate in the first column should be expressed as a percent. The rate in the next two columns should be expressed in dollars and cents (2 decimals). iv) Include the actual direct labor dollars from your journal entry in Ic. (Also used in the calculations for 5a) in the first column. v) Calculate the applied overhead by multiplying the rate (iii) times the actual driver values (iv) for each column.Lock-Tite Company Income Statement For Month Ended May 31, Year 1 Sales $1,600,000 Cost of goods sold Finished goods inventory, beginning $51,000 Cost of goods manufactured $373,400 Cost of goods available for sale $424,400 Less: Finished goods inventory, ending $34,400 Unadjusted Cost of goods sold $390,000 Add/Subtract over/under applied overhead $84,300 Adjusted Cost of Goods Sold $474,300 Gross Margin $1,125,700 c) Calculate Lock-Tite Company's overall Gross Margin percent. Hint: Gross Margin percent = Gross Margin/Sales Revenue. Gross margin percent = gross margin/sales revenue =$1,125,700/$1,600,000= 70.36% d) Many job costing companies, use cost-plus pricing, where they "markup" their total costs to set the prices quoted to customers. Prices are sometimes adjusted for job complexity and customers are occasionally charged for cost over-run (when they are identified). We can determine the average "markup" rate from Lock-Tite's income statement as: MARKUP equals sales revenue divided by unadjusted Cost of Goods Sold. Calculate Lock-Tite Company's Cost-Plus Mark-Up rate. Show 2 decimal places. You will use this later in the project Sales divided by Unadi. COGS Cost-Plus Markup Rate 4) Understanding application of Overhead: Many of the terms relating to overhead can become confusing as there are 3 different amounts that need to be considered; BUDGETED (also referred to as estimated), APPLIED and ACTUAL. Budgeted overhead (and its driver) is estimated BEFORE an accounting period and is used to set the predetermined overhead rate. APPLIED overhead is calculated DURING the accounting period as production jobs are completed and the actual driver units are incurred. ACTUAL overhead is known AFTER or at the end of an accounting period once all costs have been incurred and recorded in the accounting system. The CONNECT problem gives the APPLIED and ACTUAL amounts of overhead for Lock-Tite Company for the accounting period. Because overhead is applied based on direct labor dollars, the actual driver amounts are also known. (Direct Labor costs in dollars). But the BUDGETED overhead amount, nor the budgeted driver amount that was used to set the 55% predetermined rate were provided in the connect question. Let's generate a few numbers to use.2) Adjusting Factory Overhead: Use these T-accounts to complete the requirements below: COGS Unadjusted Balance from connect 390,000 AJE 84,300 Adjusted COGS balances 474,300 Factory Overhead Unadjusted Balance 169,000 84,700 AJE 84,300 Adjusted COGS balances 169,000 169,000 a) Include the unadjusted balances in the T accounts above. The COGS unadjusted balance can be found in the partial income statement underneath the T accounts on Question 11 of connect HW2.1 assignment. The unadjusted Factory Overhead balance is the last row of the Factory Overhead T account again in Question 15 of connect HW2.1 assignment. b) Assume Lock-Tite clears all its under- or over-applied overhead to cost of goods sold. Write the "adjusting" journal entry to zero the Factory Overhead account. Cost of goods sold a/c Dr $84,300 To factory Overhead a/c $84,300 c) Post the journal entry to the COGS and FOH T accounts above 2a and calculate the "adjusted balances for COGS. Show the ending Factory Overhead account as zero.) Sales Revenue: Using Lock-Tite's average markup rate (showing 2 decimal places) (calculated in 3d) in the table below (yellow cells). Use this markup rate to estimate the sales revenue for each of the 3 jobs. Job JV28 Job BY92 Job ZF14 Total Job Costs Calculated in 6d Cost-Plus Markup Rate Calculated in 3d Sales Revenue per Job Calculate ( multiply) f) Calculate gross margin for each job in the Jobs Report below. Note: Gross Margin equals Sales Revenue minus total job costs. g) Calculate Gross Margin percent as gross margin divided by sales revenue in the Jobs Report below. h) Compare the Gross Margin percentages for these three jobs with the company's overall gross margin percent calculated in 3c above. Why are the percentages in this table different from the percent in 3c? Should Lock-Tite be concerned with the accuracy of the overhead applied to each job? How does this effect the Jobs Report created above? Explain why in 30 to 50 words. 7) In an Activity Based Costing System, overhead is allocated to each job from each cost pool and totaled. Driver units' statistics are accumulated for each job and they are listed in the table below. Complete the table below for the following requirements. For each job, determine the total overhead applied by adding the costs allocated from each pool. (Support, Batch Setups, Product Sustaining and General Factory). Note: Use the activity rates calculated in 5b). Round costs to the nearest whole dollar. ABC Application of Overhead JV28 BY92 ZF14 drivers OH Costs drivers OH Costs drivers OH Costs Design 1 Batch Setups 4 3 8 Material Handling 15 20 55 Inspection 100 90 220 General Factory 1,100 300 400 Total OH Appliedvi) Include the actual overhead costs. This amount will be the same for all three columns and represents the sum of the debit postings to the overhead T-account on your connect Q11 of HW2.1. vii) Determine the amount of over- or under-applied overhead by subtracting the actual overhead costs (vi) from the applied overhead (v). viii) Indicate whether the amount in (vii) represents under- or over-applied overhead. c) The table represents the amount of overhead applied by Lock-Tite in the first column as well as two alternatives. Lock-Tite could have used a predetermined overhead using direct labor hours or machine hours rather than its chosen direct labor dollars. However overhead is applied, the Factory Overhead account is "cleared" or written to zero. This is the entry written in 2 above. Write the journal entry that would have been required to clear the Factory overhead account (AJE as in 2) assuming the company applied overhead using the methods in the 2"d and 3"d columns. i) AJE if Direct labor hours used: Account title and Debit Credit explanation Cost of Goods Sold $76,492 Factory overhead $76,492 ii) AJE if Machine hours used: Account title and Debit Credit explanation Cost of Goods Sold $52,114 Factory overhead $52,114 Would using a different driver significantly affect the amount of Cost of Goods Sold recorded on the income statement for May? Why or why not? Explain using 10 to 30 words. Yes, the costs of goods sold would change since the predetermined overhead rate will vary affecting the amount of adjustment to the costs of goods sold for the overhead variance. 5) Activity Based Costing, ABC is another method to apply overhead. Lock-Tite Company has identified the several cost pools and estimate of the drivers for May. Use the given percentages to allocate the total budgeted overhead across the pools. Hint: Use the budgeted overhead from 5) as your total. (100%) Round allocated costs to nearest whole number. b) Calculate the activity rate for each cost pool by dividing the "driver units" into the "allocated costs". Show decimal places for activity rates. Show 2 decimal places for activity rates.Required information [The following information applies to the questions displayed below] The following information is available for LockTite Company, which produces specialorder security products and uses a job order costing system. April 30 May 31 Inventories Raw materials $25,000 $ 43,000 Work in process 9,900 19,200 Finished goods 51,000 34,400 Activities and information for May Raw materials purchases (paid with cash) 171,000 Factory payroll (paid with cash) 200,000 Factory overhead Indirect materials 9,000 Indirect labor 46,000 Other overhead costs 114,000 Sales (received in cash) 1,600,000 Predetermined overhead rate based on direct labor cost 55% [ Ref. Account Debit Credit a) Raw Material purchased on account a Raw Material Inventory 171,000 Cash 171,000 b) Raw Material used as direct and indirect material b Work in Process Inventory 144,000 Factory Overhead 9,000 Raw Material Inventory 153,000 c) Recognition of direct and indirect labor owed to employees C Work-in Process Inventory 154,000 Factory Overhead 46,000 Factory Wages Payable 200,000 d) Application of factory overhead to work-in-process d Work in Process Inventory 84,700 Factory Overhead 84,700 e) Recognition of Cost of Goods Manufactured e Finished Goods Inventory 373,400 Work-in Process Inventory 373,400 f) Recognition of Sales Revenue f Cash 1,600,000 Sales Revenue 1,600,000 g) Recognition of Cost of Goods Sold Cost of Goods Sold 390,000 Finished Goods Inventory 390,000 h) Incurrence of other overhead costs (use "various" to represent multiple accounts. h Factory Overhead 114,000 Accounts Payable 114,000Lock-Tite Company Jobs Report - Traditional OH allocation (DL dollars) Year Ending December 31 JV28 BY92 ZF14 Sales Revenue From be) Job Costs: Direct Material Start here in 6a) Direct Labor From 6b) Overhead From 6c) Total Job Costs/COGS DM+DL+OH Gross Margin Sales - COGS Gross Margin % GM/Sales a) Direct Material: Job JV28 used 8% of the company's Direct Material (amount from JE 1b), Job BY92 used 6% and Job ZF 14 used 4% the company's Direct Material. Use these percentages and calculate the Direct Material for each job. The combined total for the three jobs WILL NOT agree to the total costs because Lock-Tite has other jobs they sold as well as jobs that are still in inventory. Include these amounts in the Jobs Report above. Job JV28 Job BY92 Job ZF14 Total DM From JE 1b (Direct only) % used by job 8% 6% 1% | Given above DM per job Calculate (multiply) b) Direct Labor: 8% of the company's actual Direct Labor costs were spent on Job JV28. Job BY92 and ZF 14 each used 3% and 2%, respectively. Use these percentages and calculate the Direct Material for each job. Include these amounts in the table above. Job JV28 Job BY92 Job ZF 14 Total DL From JE Ic (Direct only) % used by job 4% 3% above DL per job Calculate (multiply) c) Factory Overhead; Use the 55% of direct labor dollars and calculate the overhead as it would be applied using a plantwide predetermined rate. Include the amounts in the Jobs Report above for Overhead Cost. Job JV28 Job BY92 Job ZF14 DL per job Calculated in 6b bottom Predetermined rate 0.55 0.55 0.55 given in connect FOH per job Calculate (multiply) d) Determine the total job costs by adding DM, DL and OH for each job in the Jobs Report above. (Add DM, DL and OH together).5. E Estimated % of Driver Calculated Total Allocated costs units Driver Activity Rate Design 14% $16,601 22 # of Jobs $754.59 Batch setup 10% $11,858 0 # of set ups $237.16 Material 62% $73,520 240 # of materials $306.33 Handling Inspection 5% $5,929 1,200 # of units $4.94 General Factory 9% $10,672 14,000 machine hours 50.76 Total Budgeted OH 100% $118,580 -Start here with 4a amount c) During May, the company tracked the necessary drivers for each cost pool. These driver units are listed in the table below. Multiply these units by the appropriate "activity rate" from the table above in 5b. Add the total together. This represents applied overhead for Lock-Tits had used ABC costing. Round to the nearest whole dollar. Actual Driver units Driver Applied Factory Overhead Design 30 # of Jobs 2263.77 Batch setup 70 # of set ups 660.12 Material Handling 330 # of materials 101088.90 Inspection 1,600 # of units 87904 General Factory 13,800 machine hours 10488 Total Applied Overhead 203,404.79 d) Using ABC, would overhead be over- or under-applied? By how much? c) Overhead is becoming a bigger and bigger cost component of Lock-Tite's products. The vice president has indicated the company has had a difficult time applying overhead because of the complexity of their products. Products tend to have a higher number of components that require more costly material handling and designing. Which method do you think would be best for Lock-Tite to use to apply overhead? Traditional plant-wide overhead rate using direct labor dollars, hours, machine hours, or ABC method? Support your answer by incorporating observations from the calculations in 5) and 6). Answer with complete sentences using between 30 and 50 words. 6) To better understand the impact of the applying overhead for their job costing facility, Lock-Tite wants to analyze a few of its larger jobs using both their traditional (percent of direct labor dollars) versus the ABC method. Lock-Tite's three largest jobs during the year were, JV28, BY92 and ZF 14. Use the calculations in a) through g) below to complete the Jobs Report here. Use whole dollar amounts except for Gross Margin %