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 $4,290,000 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
12,200 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, $315,000.
b. Raw materials used in production, $254,000 (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, $62,300.
e. Other manufacturing overhead costs incurred on account, $84,200.
f. Manufacturing overhead cost was applied to production on the basis of 40,960
machine-hours actually worked during the month.
g. The completed job for 12,200 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 10,800 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

1	Sl No.	Account titles and explanation					Debit	Credit
	a.	Materials inventory					315000
		Accounts payable						315000
		(Material purchased on account)
	b.	Work in process inventory			(254000*80%)		203200
		Manufacturing overhead			(254000*20%)		50800
		Materials inventory						254000
		(Materials used in production)
	c.	Work in process inventory			(177000*1/3)		59000
		Manufacturing overhead			(177000*2/3)		118000
		Salaries and wages payable						177000
		(Labor cost accrued)
	d.	Manufacturing overhead					62300
		Accumulated depreciation-Equipment						62300
		(Depreciation recorded)
	e.	Manufacturing overhead					84200
		Accounts payable						84200
		(Other manufacturing overhead cost incurred)
	f.	Work in process inventory				(Note:1)	307200
		Manufacturing overhead						307200
		(Manufacturing overhead applied)
	Note:1
	Predetermined overhead rate=Estimated manufacturing overhead/Estimated machine hours=4290000/572000=$ 7.5 per machine hour
	Manufacturing overhead applied=Actual machine hours*Predetermined overhead rate=40960*7.5=$ 307200
2		Manufacturing overhead
	Ref.	Debit	Credit	Balance
	b.	50800		50800
	c.	118000		168800
	d.	62300		231100
	e.	84200		315300
	f.		307200	8100
		Work in process
	Ref.	Debit	Credit	Balance
	b.	203200		203200
	c.	59000		262200
	f.	307200		569400
3	Sl No.	Account titles and explanation					Debit	Credit
	g.	Finished goods inventory			(Balance of WIP)		569400
		Work in process inventory						569400
		(Completed order transferred)
4	Cost of 12200 parts=$ 569400
	Cost of 10800 parts=Cost of goods sold=564900*(10800/12200)=$ 500075