Answer both questions using chart

Lock-Tite Company

Jobs Report Traditional OH allocation (Direct Labor Dollars)

Year Ending December 31

		JV28	BY92	ZF14
Sales Revenue		132,800	99,600	92,960	Calculated in 7e)
Job Costs:
Direct Material		26,560	19,920	13,280	From 7a)
Direct Labor		7,842	5,882	5,882	From 7b)
Overhead		4,313	3,235	3,235	From 7c)
Total Job Costs		38,715	29,037	22,397
Gross Margin		70.85	70.85	75.91
Gross Margin %		53%	71%	82%

1. Comparing the Gross Margin percentages of the jobs under traditional costing. Should Lock-Tite be concerned with the accuracy of the overhead applied to each job? Explain why in 30 to 50 words.

2. Businesses that typically use job costing, will generally quote their customers a price before the work begins. Recently, Lock-Tites customers have indicated that their prices are priced significantly different from competitive companies prices. Given the significant amount of under-applied overhead, do you think these gross margin percentages are realistic? Could they be charging their customers too much? Not enough? While answering these questions, explain how the application of overhead impacts the information the company uses. Use 30 to 50 words.