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 $4,192,500 in manufacturing overhead cost at an activity level of 559,000 machine-hours.

The company spent the entire month of January working on a large order for 12,900 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, $317,000.
2. Raw materials used in production, $268,000 (80% direct materials and 20% indirect materials).
3. Labor cost accrued in the factory, $171,000 (one-third direct labor and two-thirds indirect labor).
4. Depreciation recorded on factory equipment, $63,900.
5. Other manufacturing overhead costs incurred on account, $84,400.
6. Manufacturing overhead cost was applied to production on the basis of 40,890 machine-hours actually worked during the month.
7. The completed job for 12,900 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 10,100 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

1.

No.	General Journal	Debit	Credit
a.	Raw materials	317000
	Accounts payable		317000
	(To record raw material purchased on account)
b.	Work in process	214400
	Manufacturing overheads	53600
	Raw materials		268000
	(To record materials used in production)
c.	Work in process	57000
	Manufacturing overheads	114000
	Wages payable		171000
	(To record labor cost accrued)
d.	Manufacturing overheads	63900
	Accumulated depreciation-factory equipment		63900
	(To record depreciation expense)
e.	Manufacturing overheads	84400
	Accounts payable		84400
	(To record other manufacturing costs incurred)
f.	Work in process ($4192500 x 40890/559000)	306675
	Manufacturing overheads		306675
	(To record manufacturing overheads applied)

2.

Manufacturing Overhead
b.	53600	306675	f.
c.	114000
d.	63900
e.	84400
Work in Process
b.	214400
c.	57000
f.	306675
	578075

3.

No.	General Journal	Debit	Credit
g.	Finished goods	578075
	Work in process		578075
	(To record transfer to finished goods)

4. Job cost included in cost of goods sold for February = $578075 x 10100/12900 = $452601.

Note: Under applied overheads have not been adjusted since no instructions regarding the same given in the question. Also journal entry g. has not not been posted to T-accounts since not required in question.