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 $4,215,000 in manufacturing overhead cost at an activity level of 562,000 machine-hours.

The company spent the entire month of January working on a large order for 12,400 custom-made machined parts. The company had no work in process at the beginning of January. Cost data relating to January follow:

1. Raw materials purchased on account, $319,000.
2. Raw materials used in production, $256,000 (80% direct materials and 20% indirect materials).
3. Labor cost accrued in the factory, $153,000 (one-third direct labor and two-thirds indirect labor).
4. Depreciation recorded on factory equipment, $63,900.
5. Other manufacturing overhead costs incurred on account, $85,400.
6. Manufacturing overhead cost was applied to production on the basis of 40,760 machine-hours actually worked during the month.
7. The completed job for 12,400 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 10,400 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

Transaction	General Journal				Debit	Credit
a.	Raw materials inventory				319,000
	Accounts payable					319,000
b.	Work in process inventory				204800
	Manufacturing overhead				51200
	Raw materials inventory					256,000
c.	Work in process inventory				51,000
	Manufacturing overhead				102,000
	Factory wages payable					153,000
d.	manufacturing overhead				63,900
	Accumulated depreciation					63,900
e.	Manufacturing overhead				85,400
	Accounts paybale					85,400
f.	work in process inventory				305700
	manufacturing overhead					305,700
	(4215000/562000)*40760
2)	Manufacturing overhead
	b.	51200	305700	f.
	c.	102,000
	d.	63,900
	e.	85,400
	end bal		3,200
	work in process
	b.	204800
	c.	51,000
	f.	305700
	end bal	561500
3)
g.	finished goods inventory				561500
	Work in process inventory					561500
4)	cost of goods sold
	unit cost	561500/12400=		45.28
	hence cost of goods sold (45.28*10400)=				470935