Question

In: Accounting

Dillon Products manufactures various machined parts to customer specifications. The company uses a job-order costing system...

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:

  1. Raw materials purchased on account, $321,000.
  2. Raw materials used in production, $257,000 (80% direct materials and 20% indirect materials).
  3. Labor cost accrued in the factory, $165,000 (one-third direct labor and two-thirds indirect labor).
  4. Depreciation recorded on factory equipment, $63,000.
  5. Other manufacturing overhead costs incurred on account, $85,800.
  6. Manufacturing overhead cost was applied to production on the basis of 40,700 machine-hours actually worked during the month.
  7. The completed job for 12,600 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 10,300 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?

Solutions

Expert Solution

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


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