Ref Account Debit Credit a) Raw Material purchased on account 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 Work in Process Inventory 84,700 Factory Overhead 84,700 e) Recognition of Cost of Goods Manufactured Finished Goods Inventory 373,400 Work-in Process Inventory 373,400 f) Recognition of Sales Revenue Cash 1,600,000 Sales Revenue 1,600,000 g) Recognition of Cost of Goods Sold g 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-Variance 114,000 Accounts Payable 114,0002) 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 169,000 169,000LOCK-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 $373,400 b) Complete the partial income statement for the table below (include amounts in all pale blue cells): 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 $1,125,700c) 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 1,600,000 : 474,300 3.37 4 e) Use the Direct Labor costs used in the journal entry in 1c. (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 ) 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 $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 iv) Actual driver values *$150,000 7,800 DL hours 13,800 hours v) Applied factory overhead $84,700 $92,508 $1 16,886 vi) Actual Overhead Costs vii) over/(under) applied factory overhead amount $84,300 $76,492 $52,114 viii) Over or Under-applied? under under underg) 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 55. B Estimated % of Driver Calculated Total Allocated costs Brim Activity Rate Design 22 # of Jobs $754.59 Batch setup 50 # of set ups $237.16 Material 240 # of $306.33 Handling materials Inspection 1,200 # of units $4.94 General Factory -| 14,000 machine hours $0.76 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-Whad used ABC costing. Round to the nearest whole dollar. Actual Driver Dm Applied Factory Overhead Design 30 # of Jobs 2263.77 Batch setup 70 # of set ups 1660.12 Material Handling 330 # of materials 101088.90 Inspection 1,600 # of units 87904 General Factory 13,800 machine hours 10488 Total Applied Overhead d) Using ABC, would overhead be over- or under-applied? By how much? llll llllllllllllllllllllllllllllllllllllllllllllllll|||L_J|||lllll I I I I I I I I e) Overhead is becoming a bigger and bigger cost component of Lock-m products. The vice president has indicated the company has had a difcult 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-m 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. ABC method would be better to use. Because it; uses a more specic rate which is easier to analyze. Therefore, ABC method would be better to use. 5) To better understand the impact of the applying overhead for their job costing facility, Lock-m wants to analyze a few of its larger jobs using both their traditional (percent of direct labor dollars) versus the ABC method. Lock-mg three largest jobs during the year were, W28, BY92 and ZF14. Use the calculations in a) through g) below to complete the Jobs Report here. Use whole dollar amounts except for Gross Margin % Sales Revenue From 63) Job Costs: Direct Material Start here in 6a) Direct Labor From 61;) Overhead From 60) Total Job Costs/COGS DM+DL+OH Gross Margin Sales - COGS Gmss Margin % |:|:|:|] GM/Saies a) Direct Material: Job IV 28 used 8% of the company's Direct Material (amount from J'E 1b), .Tob 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-Inghas other jobs they sold as well as jobs that are still in inventory. Include these amounts in the Jobs Report above. Job W28 Job BY92 Job ZF14 Total DM %usedb '0b 8% 6% n Cafculate mu! b) Direct Labor: 8% of the company's actual Direct Labor costs were spent on Job N28. 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 N28 Job BY92 Job ZF14 Total DL _5- Material Handling _ _ _ Inspection .ID_ .m_ - General Factory [m _ In] Total 0H Applied |:| |:| |:| 7) ABC Job Costing: Complete the Jobs Report here using the directions below. Lock-WCompany Job Report ABC N28 BY92 ZF14 Sales Revenue _ Job Costs: Direct Material Direct Labor Overhead _'om 8 Total Job Costs Gross Margin Gross Margin % a) Sales Revenue, Direct Material and Direct Labor costs will be the same regardless of how overhead is applied. Include these amounts from the I obs Report prepared in 6) above. Presumably, the customers of these jobs have already been billed and paid these revenue amounts so we cannot change them. The Direct Material and the Direct Labor information would also remain the same as it indicates the amounts requisitioned from raw materials and employee time- card information. b) Include the applied overhead calculated under ABC as calculated in 7) above. Because this is a managerial evaluation, the company is free to presume alternate methods of cost allocations. c) Complete the Jobs Report and calculate Gross Margin percent for each job. d) Comparing the Gross Margin percentages of the jobs under the Activity Based Costing system, which job is more attractive for Lock-mm sell? How does the 1 ob Report above, compare with the Job Report in 6? Identify and discuss at least two assumptions that could be made by comparing the two reports. Explain using complete sentences and 30 to 50 words