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 $4,166,200 in manufacturing overhead cost at an activity level of 563,000 machine-hours.

The company spent the entire month of January working on a large order for 12,800 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, $324,000.

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

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

Depreciation recorded on factory equipment, $62,200.

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

Manufacturing overhead cost was applied to production on the basis of 40,690 machine-hours actually worked during the month.

The completed job for 12,800 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.)

- Prepare a journal entry for item (g) above.

Finished goods Debit $576106, Work in Process Credit $5767106

- Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items from your journal entries to these T-accounts.

Manufacturing Overhead Ending Balance: $18394

Work in Process Ending Balance: $576106

Required:

4. If 10,400 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?(Portion of Job Included in Cost of Goods Sold)

Answer 1

Journal Entry					Manufacturing Overhead
S. No.	Accounts Title and explanation	Debit $	Credit $		Raw Material	$54,000	Work in process	$301,106
a	Raw Materials	$324,000			Wages Payable	$118,000	(@ $7.40 per labor hr.)
	Accounts Payable		$324,000		Factory equipments- Depreciation	$62,200	-
	To Record Purchase of Raw Material				Other Overhead	$85,300	Closing Balance	$18,394
b	Work in process	$216,000			Total	$319,500	Total	$319,500
	Manufacturing Overhead	$54,000
	Raw Materials		$270,000			Work in process
	To Record Raw Material Used				Raw Materials	$216,000	Finished Goods Inventory	$576,106
					Wages Payable	$59,000
c.	Work in process	$59,000			Manufacturing Overhead	$301,106
	Manufacturing Overhead	$118,000			Total	$576,106	Total	$576,106
	Wages Payable		$177,000
	To Record Labour cost incurred				4. Computation of Job Cost included in Cost pf Goods Sold
					Total Calculated cost for 12,800 Unit		$576,106
d	Manufacturing Overhead	$62,200			Cost of 10400 Unit		$468,086.13
	Depreciation - Factory equipment		$62,200		($576106/12800*10400)
	To Record Depreciation
e	Manufacturing Overhead	$85,300
	Accounts Payable		$85,300
	To Record overhead cost incurred
f	Work in process ($7.4*40690Hour)	$301,106
	Manufacturing Overhead		$301,106
	To record Overhead cost Applied
g	Finished Goods	$576,106
	Work in progress		$576,106