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 $4,347,200 in manufacturing overhead cost at an activity level of 572,000 machine-hours. The company spent the entire month of January working on a large order for 12,500 custom-made machined parts. The company had no work in process at the beginning of January. Cost data relating to January follow: a. Raw materials purchased on account, $314,000. b. Raw materials used in production, $259,000 (80% direct materials and 20% indirect materials). c. Labor cost accrued in the factory, $153,000 (one-third direct labor and two-thirds indirect labor). d. Depreciation recorded on factory equipment, $63,600. e. Other manufacturing overhead costs incurred on account, $84,200. f. Manufacturing overhead cost was applied to production on the basis of 40,940 machine-hours actually worked during the month. g. The completed job for 12,500 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 10,200 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

Predetermined overhead rate = $4347200/572000 = $7.60 per machine hour

1.

No.	General Journal	Debit	Credit
a.	Raw materials	314000
	Accounts payable		314000
	(To record raw material purchased on account)
b.	Work in process (80% x $259000)	207200
	Manufacturing overheads (20% x $259000)	51800
	Raw materials		259000
	(To record materials used in production)
c.	Work in process ($153000 x 1/3)	51000
	Manufacturing overheads ($153000 x 2/3)	102000
	Wages payable		153000
	(To record labor cost accrued)
d.	Manufacturing overheads	63600
	Accumulated depreciation-factory equipment		63600
	(To record depreciation expense)
e.	Manufacturing overheads	84200
	Accounts payable		84200
	(To record other manufacturing costs incurred)
f.	Work in process (40940 x $7.60)	311144
	Manufacturing overheads		311144
	(To record manufacturing overheads applied)

2.

Manufacturing Overhead
b.	51800	311144	f.
c.	102000
d.	63600
e.	84200
End. Bal.		9544
Work in Process
b.	207200
c.	51000
f.	311144
End. Bal.	569344

Note: Journal entry g. has not not been posted to T-accounts since not asked for in the question.

3.

No.	General Journal	Debit	Credit
g.	Finished goods	569344
	Work in process		569344
	(To record transfer to finished goods)

4. Cost per unit = $569344/12500 = $45.55

Portion of job cost included in cost of goods sold = 10200 x $45.55 = $464610