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 $4,151,400 in manufacturing overhead cost at an activity level of 561,000 machine-hours.

The company spent the entire month of January working on a large order for 12,500 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, $321,000.
2. Raw materials used in production, $270,000 (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, $63,200.
5. Other manufacturing overhead costs incurred on account, $84,600.
6. Manufacturing overhead cost was applied to production on the basis of 40,770 machine-hours actually worked during the month.
7. The completed job for 12,500 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 10,900 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?

• Raw materials purchased on account, $321,000.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit a.

• Raw materials used in production, $270,000 (80% direct materials and 20% indirect materials).

Note: Enter debits before credits.

	Transaction General Journal Debit Credit b.

• Labor cost accrued in the factory, $153,000 (one-third direct labor and two-thirds indirect labor).

Note: Enter debits before credits.

Transaction General Journal Debit Credit c. Depreciation recorded on factory equipment, $63,200. Note: Enter debits before credits. Manufacturing overhead cost was applied to production on the basis of 40,770 machine-hours actually worked during the month. Note: Enter debits before credits. Transaction General Journal Debit Credit f. Transaction General Journal Debit Credit d. Other manufacturing overhead costs incurred on account, $84,600. Note: Enter debits before credits. Transaction General Journal Debit Credit e.

Answer 1

Answer 1:

Predetermined overhead rate = Estimated manufacturing overhead cost / Estimated machine hours = $4,151,400 /561000 = $7.40

Manufacturing overhead applied = 40770 * 7.40 = $301,698

Answer 2:

Answer 3:

Answer 4:

Cost of goods manufactured = 568698

Number of units produced =12500

If 10,900 of the custom-made machined parts are shipped to the customer in February:

Cost will be included in cost of goods sold for February = 568698 / 12500 * 10900 = $495,904.66

Cost will be included in cost of goods sold for February = $495,904.66