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 $4,181,000 in manufacturing overhead cost at an activity level of 565,000 machine. hours. The company spent the entire month of January working on a large order for 12,300 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, $321,000. b. Raw materials used in production, $265.000 (80% direct materials and 20% indirect materials). c. Labor cost accrued in the factory, $174,000 (one-third direct labor and two-thirds Indirect labor). d. Depreciation recorded on factory equipment, $62,700. e. Other manufacturing overhead costs incurred on account, $85,500 f. Manufacturing overhead cost was applied to production on the basis of 40,660 machine-hours actually worked during the month. g. The completed job for 12,300 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 (1) above [ignore item (9) 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 (9) above. 4. If 10,300 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? Complete the question by entering your answers in the tabs below.

Answer 1

1	Sl No.	Account titles and explanation					Debit	Credit
	a.	Materials inventory					321000
		Accounts payable						321000
		(Material purchased on account)
	b.	Work in process inventory			(265000*80%)		212000
		Manufacturing overhead			(265000*20%)		53000
		Materials inventory						265000
		(Materials used in production)
	c.	Work in process inventory			(174000*1/3)		58000
		Manufacturing overhead			(174000*2/3)		116000
		Salaries and wages payable						174000
		(Labor cost accrued)
	d.	Manufacturing overhead					62700
		Accumulated depreciation-Equipment						62700
		(Depreciation recorded)
	e.	Manufacturing overhead					85500
		Accounts payable						85500
		(Other manufacturing overhead cost incurred)
	f.	Work in process inventory				(Note:1)	300884
		Manufacturing overhead						300884
		(Manufacturing overhead applied)
	Note:1
	Predetermined overhead rate=Estimated manufacturing overhead/Estimated machine hours=4181000/565000=$ 7.4 per machine hour
	Manufacturing overhead applied=Actual machine hours*Predetermined overhead rate=40660*7.4=$ 300884
2		Manufacturing overhead
	Ref.	Debit	Credit	Balance
	b.	53000		53000
	c.	116000		169000
	d.	62700		231700
	e.	85500		317200
	f.		306075	11125
		Work in process
	Ref.	Debit	Credit	Balance
	b.	212000		212000
	c.	58000		270000
	f.	300884		570884
3	Sl No.	Account titles and explanation					Debit	Credit
	g.	Finished goods inventory					570884
		Work in process inventory						570884
		(Completed order transferred)
4	Cost of 12300 parts=$ 570884
	Cost of 10300 parts=Cost of goods sold=570884*(10300/12300)=$ 478057.3