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 $4,800,000 in manufacturing overhead cost at an activity level of 240,000 machine-hours.

The company spent the entire month of January working on a large order of 16,000 custom-made machined parts. The company had no work in process at the beginning of January. Cost data relating to January follow:

1. Prepare journal entries to record items (a) through (f), [ignore item (g) for the moment.]

1. Raw materials purchased on account, $325,000.
2. Raw materials used in production, $290,000 (80% direct materials and 20% indirect materials).
3. Labor cost accrued in the factory, $180,000 (one-third direct labor and two-thirds indirect labor).
4. Depreciation recorded on factory equipment, $75,000.
5. Other manufacturing overhead costs incurred on account, $62,000.
6. Manufacturing overhead cost was applied to production on the basis of 15,000 machine-hours actually worked during the month.
7. The completed job for 16,000 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.)

2. Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items from your journal entries to these T-accounts.

Manufacturing Overhead

Work in Process

3. Prepare a journal entry for item (g) above. The cost of the completed job is $592,000 as shown in the Work in Process T-account in requirement 2. The journal entry is:

4. If 10,000 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? The unit product cost for this job would be:

Answer 1

Transaction	General Journal				Debit	Credit
a.	Raw materials inventory				325,000
	Accounts payable					325,000
b.	Work in process inventory				232000
	Manufacturing overhead				58000
	Raw materials inventory					290,000
c.	Work in process inventory				60,000
	Manufacturing overhead				120,000
	Factory wages payable					180,000
d.	manufacturing overhead				75,000
	Accumulated depreciation					75,000
e.	Manufacturing overhead				62,000
	Accounts paybale					62,000
f.	work in process inventory				300000
	manufacturing overhead					300,000
	(4,800,000/240000)*15000
2)	Manufacturing overhead
	b.	58000	300000	f.
	c.	120,000
	d.	75,000
	e.	62,000
	end bal	15,000
	work in process
	b.	232000
	c.	60,000
	f.	300000
	end bal	592000
3)
g.	finished goods inventory				592000
	Work in process inventory					592000
4)	cost of goods sold
	unit cost	592000/16000=		37.00
	hence cost of goods sold (37*10000)=				370000