c) Recognition of direct and indirect labor owed to employees C Work-in Process Inventory 154,000 Factory Overhead 46,000 Factory Wages Payable 200.000a) 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 x 1.4 = Budgeted DL costs in dollars x 0.77 = 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 i) Budgeted Overhead in dollars 10,000 14,000 ii) Budgeted or Estimated driver amount DL hours Machine hours iii) Predetermined overhead rate 0.55 iv) Actual driver values 7,800 DL hours 13,800 hours v) Applied factory overhead vi) Actual Overhead Costs vii) over/(under) applied factory overhead amount viii) Over or Under-applied' i) 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 Sa 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 (2d 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.vi) 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 2d and 3"d columns. i) AJE if Direct labor hours used: ii) AJE if Machine hours used: d) 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. 5) Activity Based Costing, ABC is another method to apply overhead. Lock-Lite Company has identified the several cost pools and estimate of the drivers for May. a) 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. Estimated % of Driver Calculated Total Allocated costs units Driver Activity Rate Design 14% 22 # of Jobs Batch setup 10% 50 # of set ups Material 62% 240 # of materials Handling Inspection 5% 1,200 # of units General Factory 9% 14,000 machine hours Total Budgeted OH 100% Start here with 4a amountLock-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-Lite 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.pale blue cell: LOCK-TITE COMPANY Schedule of Cost of Goods Manufactured For Month Ended May 31, Year X Direct materials Raw materials inventory, beginning $25,000 Add: Raw materials purchases $171,000 Raw materials available for use $196,000 Less: Raw materials inventory, ending $43,000 Raw materials used Less: Indirect material used $9,000 Direct Material used $144,000 Direct labor $154,000 Factory overhead applied $85.700 Total manufacturing costs $383,700 Add: Work in process inventory, beginning $9,900 Total cost of work in process $393,600 Less: Work in process inventory, ending $19,200 Cost of Goods Manufactured $373,4002) 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