In: Accounting
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 $4,339,600 in manufacturing overhead cost at an activity level of 571,000 machine-hours.
The company spent the entire month of January working on a large order for 12,600 custom-made machined parts. The company had no work in process at the beginning of January. Cost data relating to January follow:
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 10,300 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?
1)
Particular | Debit | Credit |
Raw material | $321,000 | |
Account Payable | $321,000 | |
Work in progress | $205,600 | |
Manufacturing Overheads | $51,400 | |
Account Payable | $257,000 | |
Work in progress | $55,000 | |
Manufacturing Overheads | $110,000 | |
Accounts Payable | $165,000 | |
Raw Material | $63,000 | |
Account Payable | $63,000 | |
Manufacturing Overhead | $85,800 | |
Account payable | $85,800 | |
Work in progress ( $7.60*40,700) | $309,320 | |
Manufacturing overheads | $309,320 |
Predetermined overhead rate = Total Budgeted overhead cost / Total Budgeted machine hours
= $4,339,600 / 571,000 = $7.60
2)
Manufacturing Overhead |
Particular | Amount | Particular | Amount |
Account Payable( Material) | $51,400 | Work in progress | $309,320 |
Account payable ( Labor) | $110,000 | ||
Account Payable ( other) | $85,800 | ||
C/f Balance | $62,120 | ||
$309,320 | $309,320 |
Work in progress |
Particular | Amount | Particular | Amount |
Account payable ( Material) | $205,600 | ||
Account payable (Labor) | $55,000 | ||
Manufacturing overhead | $309,320 | C/f Balance | $569,920 |
$569,920 | $569,920 |
3)
Particular | Debit | Credit |
Finished Goods | $569,920 | |
Work-in-progress | $569,920 |
4) Unit product cost = $569,920 / 12,600 = $45.23
Job cost = 10,300 * $45.23 =$465,869