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 $4,158,800 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 12,500 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, $312,000.

Raw materials used in production, $254,000 (80% direct materials and 20% indirect materials).

Labor cost accrued in the factory, $168,000 (one-third direct labor and two-thirds indirect labor).

Depreciation recorded on factory equipment, $62,100.

Other manufacturing overhead costs incurred on account, $85,200.

Manufacturing overhead cost was applied to production on the basis of 40,970 machine-hours actually worked during the month.

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 10,600 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?

Primare Corporation has provided the following data concerning last month’s manufacturing operations.

Purchases of raw materials	$	30,000
Indirect materials included in manufacturing overhead	$	4,950
Direct labor	$	59,400
Manufacturing overhead applied to work in process	$	87,500
Underapplied overhead	$	4,010

Inventories	Beginning		Ending
Raw materials	$	11,100	$	18,500
Work in process	$	54,600	$	69,700
Finished goods	$	33,600	$	43,800

Required:

1. Prepare a schedule of cost of goods manufactured for the month.

2. Prepare a schedule of cost of goods sold for the month. Assume the underapplied or overapplied overhead is closed to Cost of Goods Sold.

Answer 1

1.

Dillon Products
General journal for the month of January
Ref	Account Title	Debit	Credit
a	Raw material	312000
	Accounts Payable		312000
	(Raw material purchased on account)
b	Work-in-process	203200
	Manufacturing Overhead	50800
	Raw material		254000
	(Raw material issued for production)
c	Work-in-process	56000
	Manufacturing Overhead	112000
	Wages payable		168000
	(Wages incurred for the month)
d	Depreciation	62100
	Accumulated Depreciation - Factory Equipment		62100
	(Depreciation on manufacturing equipment)
e	Manufacturing Overhead	85200
	Accounts Payable		85200
	(Other manufacturing incurred)
f	Work-in-process	303178
	Manufacturing Overhead		303178
	(Manufacturing overhead applied to production)

2.

Raw Material					Work-in-process
Ref	Debit	Credit	Ref		Ref	Debit	Credit	Ref
a	312000	203200	b		b	203200
		50800	b		c	56000
					f	303178
	312000	254000
						562378	0
Manufacturing overhead
Ref	Debit	Credit	Ref
b	50800	303178	f
c	112000
d	62100
e	85200
	310100	303178

Predetermined overhead rate
Estimated manufacturing overhead	4158800
Estimated machine hours	562000
Predetermined overhead rate	7.40
Manufacturing overhead applied (40,970 hours)	303178

3.

Ref	Account Title	Debit	Credit
g	Finished goods	562378
	Work-in-process		562378
	(Cost of 12,500 machine parts transferred to finished goods)

4. Cost of goods sold = $476,894

Working:

Cost of 12,500 goods	562378
Cost per unit	44.99
Cost of goods sold (10,600 units sold)	476894

1.

Primare Corporation
Schedule of cost of goods manufactured
Beginning inventory of raw material	11100
Add: Purchase of raw material *	25050
Raw material available for use	36150
Les: Ending inventory of raw material	18500
Raw material used	17650
Direct labor cost	59400
Manufacturing overhead applied	87500
Cost of manufacture for the month	164550
Add: Beginning work-in-process	54600
	219150
Less: Ending work-in-process	69700
Cost of goods manufactured	149450
* Value of indirect material used removed as this will
be accounted under manufacturing overhead.

2.

Primare Corporation
Schedule of cost of goods sold
Cost of goods manufactured	149450
Add: Beginning inventory of finished goods	33600
Raw material available for use	183050
Les: Ending inventory of finished goods	43800
Unadjusted cost of goods sold	139250
Adjustment for underapplied overhead	4010
Adjusted cost of goods sold	143260