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 $4,282,500 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 12,200 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, $316,000.
2. Raw materials used in production, $269,000 (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, $62,500.
5. Other manufacturing overhead costs incurred on account, $85,300.
6. Manufacturing overhead cost was applied to production on the basis of 40,500 machine-hours actually worked during the month.
7. 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?

Journal entry worksheet

• Raw materials purchased on account, $316,000.

Note: Enter debits before credits.

Transaction	General Journal	Debit	Credit
a.

• Raw materials used in production, $269,000 (80% direct materials and 20% indirect materials).

Note: Enter debits before credits.

Transaction	General Journal	Debit	Credit
a.

• Labor cost accrued in the factory, $165,000 (one-third direct labor and two-thirds indirect labor).

Note: Enter debits before credits.

Transaction	General Journal	Debit	Credit
a.

• Depreciation recorded on factory equipment, $62,500.

Note: Enter debits before credits.

Transaction	General Journal	Debit	Credit
a.

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

Note: Enter debits before credits.

Transaction	General Journal	Debit	Credit
a.

• Manufacturing overhead cost was applied to production on the basis of 40,500 machine-hours actually worked during the month.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit a.

Answer 1

Transaction	General Journal				Debit	Credit
a.	Raw materials inventory				316,000
	Accounts payable					316,000
b.	Work in process inventory				215200
	Manufacturing overhead				53800
	Raw materials inventory					269,000
c.	Work in process inventory				55,000
	Manufacturing overhead				110,000
	Factory wages payable					165,000
d.	manufacturing overhead				62,500
	Accumulated depreciation					63,500
e.	Manufacturing overhead				85,300
	Accounts paybale					85,300
f.	work in process inventory				303750
	manufacturing overhead					303,750
2)	Manufacturing overhead
	b.	53800	303750	f.
	c.	110,000
	d.	62,500
	e.	85,300
	end bal	7,850
	work in process
	b.	215200
	c.	55,000
	f.	303750
	end bal	573950
3)
g.	finished goods inventory				573950
	Work in process inventory					573950
4)	cost of goods sold
	unit cost	573950/12200=		47.05
	hence cost of goods sold (47.05*10800)=				508087