Question

Dillon Products manufactures various machined parts to customer specifications. The company uses a job-order costing system and applies overhead cost to jobs on the basis of machine-hours. At the beginning of the year, the company used a cost formula to estimate that it would incur $4,192,500 in manufacturing overhead cost at an activity level of 559,000 machine-hours. The company spent the entire month of January working on a large order for 12,800 custom-made machined parts. The company had no work in process at the beginning of January. Cost data relating to January follow: Raw materials purchased on account, $319,000. Raw materials used in production, $252,000 (80% direct materials and 20% indirect materials). Labor cost accrued in the factory, $156,000 (one-third direct labor and two-thirds indirect labor). Depreciation recorded on factory equipment, $62,800. Other manufacturing overhead costs incurred on account, $84,800. Manufacturing overhead cost was applied to production on the basis of 40,720 machine-hours actually worked during the month. The completed job for 12,800 custom-made machined parts was moved into the finished goods warehouse on January 31 to await delivery to the customer. (In computing the dollar amount for this entry, remember that the cost of a completed job consists of direct materials, direct labor, and applied overhead.) Required: 1. Prepare journal entries to record items (a) through (f) above [ignore item (g) for the moment]. 2. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items from your journal entries to these T-accounts. 3. Prepare a journal entry for item (g) above. 4. If 10,300 of the custom-made machined parts are shipped to the customer in February, how much of this job’s cost will be included in cost of goods sold for February?

Answer 1

According to the requirement of the question, we have to record Journal entries and T-accounts for manufacturing overhead and work in process.

Requirement 1:- Prepare journal entries to record items (a) through (f) above ignore item (g) for the moment.

a. Raw materials purchased on account, $319,000.

Account Titles and Explanation	Debit ($)	Credit ($)
Raw Material Inventory	$319,000
Account Payables		$319,000

b. Raw materials used in production, $252,000 (80% direct materials and 20% indirect materials)

Account Titles and Explanation	Debit ($)	Credit ($)
Work in Process ($252,000 * 80%)	$201,600
Manufacturing Overhead ($252,000 * 20%)	$50,400
Raw Material Inventory		$252,000

c. Labor cost accrued in the factory, $156,000 (one-third direct labor and two-thirds indirect labor).

Account Titles and Explanation	Debit ($)	Credit ($)
Work in Process ($156,000 * 1/3)	$52,000
Manufacturing Overhead ($156,000 * 2/3)	$104,000
Wages Payable		$156,000

d. Depreciation recorded on factory equipment, $62,800.

Account Titles and Explanation	Debit ($)	Credit ($)
Manufacturing Overhead	$62,800
Accumulated Depreciation		$62,800

e. Other manufacturing overhead costs incurred on account, $84,800.

Account Titles and Explanation	Debit ($)	Credit ($)
Manufacturing Overhead	$84,800
Account Payable		$84,800

f. Manufacturing overhead cost was applied to production on the basis of 40,720 machine-hours actually worked during the month.

Account Titles and Explanation	Debit ($)	Credit ($)
Work in Process (Working Note)	$305,400
Manufacturing Overhead		$305,400

Working Note:- Calculation of Predetermined Overhead rate.

Predetermined Overhead rate = $4,192,500 / 559,000 hours = $7.5 per machine hour

Actually worked = 40,720 * $7.5 = $305,400

Requirement 2:- Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items from your journal entries to these T-accounts.

Solution:-

Manufacturing Overhead Account

Particulars	Amount ($)	Particulars	Amount($)
Raw Material Inventory	$50,400	Work in Process	$305,400
Wages Payable	$104,000
Accumulated Depreciation	$62,800
Account Payable	$84,800
Balance (Over-Applied)	$3,400

Work in Process Account

Particulars	Amount ($)	Particulars	Amount($)
Raw Material Inventory	$201,600	Finished Goods	$559,000
Wages Payable	$52,000
Manufacturing Overhead	$305,400

Requirement 3:- Prepare a journal entry for item (g) above.

Solution:- Total costs of job = $201,600 + $52,000 + $305,400 = $559,000

Account Titles and Explanation	Debit ($)	Credit ($)
Finished Goods	$559,000
Work in Process		$559,000

Requirement 4:- If 10,300 of the custom-made machined parts are shipped to the customer in February, how much of this job’s cost will be included in cost of goods sold for February?

Solution:- The Unit product cost for this job will be = $559,000 / 12,800 units = $43.67

So, the portion of this job’s cost will be included in cost of goods sold for February is: 12,800 units * $43.67 = $558,976

Thank you..

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