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 $4,232,800 in manufacturing overhead cost at an activity level of 572,000 machine-hours. The company spent the entire month of January working on a large order for 12,300 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, $320,000. Raw materials used in production, $266,000 (80% direct materials and 20% indirect materials). Labor cost accrued in the factory, $165,000 (one-third direct labor and two-thirds indirect labor). Depreciation recorded on factory equipment, $63,900. Other manufacturing overhead costs incurred on account, $84,500. Manufacturing overhead cost was applied to production on the basis of 40,630 machine-hours actually worked during the month. The completed job for 12,300 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 10,200 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

	Estimated manufacturing overheads	4232800
	Estimated machine hours	572000
	Predetermined overhead rate	7.4
a	Merchandise inventory	320000
	Accounts payable		320000
b	Work in progress	212800	(266000*80%)
	Manufacturing overheads	53200	(266000*20%)
	Merchandise inventory		266000
c	Work in progress	55000	(165000*1/3)
	Manufacturing overheads	110000	(165000*2/3)
	Wages payable		165000
d	Manufacturing overheads	63900
	Accumulated depreciation		63900
e	Manufacturing overheads	84500
	Accounts payable		84500
f	Work in progress	300662	(40630*7.4)
	Manufacturing overheads		300662
3	Finished goods	568462
	Work in progress		568462
4	Cost of goods sold	471408	(568462*10200/12300)