Question

Exercise 3-10 Applying Overhead; Journal Entries; T-accounts [LO3-1, LO3-2]

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 $4,230,000 in manufacturing overhead cost at an activity level of 564,000 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:

Raw materials purchased on account, $312,000.

Raw materials used in production, $265,000 (80% direct materials and 20% indirect materials).

Labor cost accrued in the factory, $174,000 (one-third direct labor and two-thirds indirect labor).

Depreciation recorded on factory equipment, $63,800.

Other manufacturing overhead costs incurred on account, $84,300.

Manufacturing overhead cost was applied to production on the basis of 40,980 machine-hours actually worked during the month.

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 11,000 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

Transaction	General Journal				Debit	Credit
a.	Raw materials inventory				312,000
	Accounts payable					312,000
b.	Work in process inventory				212000
	Manufacturing overhead				53000
	Raw materials inventory					265,000
c.	Work in process inventory				58,000
	Manufacturing overhead				116,000
	Factory wages payable					174,000
d.	manufacturing overhead				63,800
	Accumulated depreciation					63,800
e.	Manufacturing overhead				84,300
	Accounts paybale					84,300
f.	work in process inventory				307350
	manufacturing overhead					307,350
	(4,230,000/564000)*40980
2)	Manufacturing overhead
	b.	53000	307350	f.
	c.	116,000
	d.	63,800
	e.	84,300
	end bal	9,750
	work in process
	b.	212000
	c.	58,000
	f.	307350
	end bal	577350
3)
g.	finished goods inventory				577350
	Work in process inventory					577350
4)	cost of goods sold
	unit cost	577350/12200		47.32
	hence cost of goods sold (47.32*11000)=				520561