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 12,900 custom-made machined parts. The company had no work in process at the beginning of January. Cost data relating to January follow:

a. Raw materials purchased on account, $322,000.

b. Raw materials used in production, $265,000 (80% direct materials and 20% indirect materials).

c. Labor cost accrued in the factory, $177,000 (one-third direct labor and two-thirds indirect labor).

d. Depreciation recorded on factory equipment, $62,900.

e. Other manufacturing overhead costs incurred on account, $85,300.

f. Manufacturing overhead cost was applied to production on the basis of 40,890 machine-hours actually worked during the month.

g. The completed job for 12,900 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 10,100 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

journal entries

S.no	particular	Debit	Credit
1	raw material inventory	$322000
	Accounts payable		$322000
2	work in process ($265000×80%)	$212000
	Manufacturing overhead($265000×20%)	$53000
	Raw material inventory		$265000
3	work in process($177000×1/3)	$59000
	Manufacturing overhead($177000×2/3)	$118000
	Wages and salaries payable		$177000
4	manufacturing overhead	$62900
	Accumulated depreciation		$62900
5	manufacturing overhead	$85300
	Accounts payable		$85300
6	work in process	$306675
	Manufacturing overhead (note 1)		$306675

Note 1 : pre determined OVERHEAD rate= estimated overhead cost/estimated machine hours

= $4215000/562000 = $7.5

Manufacturing overhead cost applied = 40890×$7.50= $306675

2) manufacturing overhead

Raw material inventory	$53000	work in process	$306675
Wages and salaries payable	$118000
Accumulated depreciation	$62900	balance (underapplied)	$12525
Accounts payable	$85300

Work in process

Raw material inventory	$212000	finished goods	$577675
Wages payable	$59000
Manufacturing overhead	$306675

3) journal entries for item g

Debit. Credit

Finished goods	$577675
Work in process		$577675

4) unit product cost = $577675/12900= $44.78

Portion included in cost of goods sold = 10100×$44.78 = $452278

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