Answer:
a. Computation of the following amounts for the month of May using T-accounts:
1. Cost of direct materials used = $176,000
2. Cost of direct labor used = $77,000
3. Cost of goods manufactured = $286,150
4. Cost of goods sold = $308,850
5. Gross profit = $691,150
6. Overapplied or underapplied overhead = $89,650 (underapplied)
b. Journal Entries:
Debit Raw materials $172,000 
Credit Cash $172,000
To record the purchase of raw materials for cash.
Debit Factory payroll $100,000
Credit Cash $100,000
To record the payroll paid in cash.
Debit Factory overhead:
  Indirect materials $6,000 
  Indirect labor $23,000 
  Other overhead costs 103,000 
Credit Raw materials $6,000
Credit Factory payroll $23,000
Credit Cash $103,000
To record indirect materials, labor and other costs.
Debit Work in process $42,350 
Credit Factory overhead $42,350
To apply overhead based on direct labor cost 55%.
Debit Cash $1,000,000 
Credit Sales Revenue $1,000,000
To record the sale of goods for cash.
Explanation:
a) Data and Calculations:
Inventories:
Raw materials $ 42,000 $ 32,000 
Work in process 9,100 18,300 
Finished goods 57,000 34,300
Activities for May:
Raw materials purchases (paid with cash) 172,000 
Factory payroll (paid with cash) 100,000 
Factory overhead:
Indirect materials 6,000 
Indirect labor 23,000 
Other overhead costs 103,000 
Sales (received in cash) 1,000,000 
Predetermined overhead rate based on direct labor cost 55%
T-accounts:
Raw materials
Beginning balance $ 42,000
Cash                         172,000
Manufacturing overhead                6,000
Work in process                          176,000
Ending balance                         $ 32,000
Work in process
Beginning balance    9,100 
Raw materials       176,000
Payroll                     77,000
Overhead applied 42,350
Finished goods                          286,150
Ending balance                            18,300 
Finished goods
Beginning balance 57,000
Work in process   286,150
Cost of goods sold                   308,850
Ending balance                           34,300
Manufacturing overhead
Indirect materials             6,000 
Indirect labor                 23,000 
Other overhead costs 103,000
Work in process                            42,350
Underapplied overhead               89,650
Sales revenue    $1,000,000
Cost of goods sold 308,850
Gross profit            $691,150
Analysis of Transactions:
Raw materials $172,000 Cash $172,000
Factory payroll $100,000 Cash $100,000
Factory overhead:
Indirect materials $6,000 Raw materials $6,000
Indirect labor $23,000 Factory payroll $23,000
Other overhead costs 103,000 Cash $103,000
Work in process $42,350 Factory overhead $42,350
Predetermined overhead rate based on direct labor cost 55%
Cash $1,000,000 Sales Revenue $1,000,000