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 $4,247,600 in manufacturing overhead cost at an activity level of 574,000 machine-hours.

The company spent the entire month of January working on a large order for 12,000 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, $318,000.
2. Raw materials used in production, $262,000 (80% direct materials and 20% indirect materials).
3. Labor cost accrued in the factory, $168,000 (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, $85,000.
6. Manufacturing overhead cost was applied to production on the basis of 40,770 machine-hours actually worked during the month.
7. The completed job for 12,000 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.)

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 10,500 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) journal entries

S.no	particular	debit ($)	credit ($)
1	RAW MATERIAL INVENTORY	318000
	Accounts payable		318000
2	work in process	209600
	Manufacturing overhead	52400
	RAW MATERIAL INVENTORY		262000
3	work in process	56000
	Manufacturing overhead	112000
	Wages payable		168000
4	manufacturing overhead	63900
	Accumulated depreciation		63900
5	manufacturing overhead	85000
	Accounts payable		85000
6	work in process (note below)	301698
	Manufacturing overhead		301698

PRE DETERMINED OVERHEAD rate = $4247600/574000= 7.4 per machine hours

= 40770 machine hrs × 7.4 =$301698

2) MANUFACTURING OVERHEAD

Raw material inventory	$52400	work in process	$301698
Wages payable	$112000
Accumulated depreciation	$63900
Accounts payable	$85000	balance (underapplied)	$11602

work in process

RAW MATERIAL INVENTORY	$209600	finished goods	$567298
Wages payable	$56000
Manufacturing overhead	$301698

3.

Finished goods	$567298
WORK IN PROCESS		$567298

4)

Cost per unit = $567298/12000units = $47.27

TOTAL COST OF 10500 UNITS = 10500UNITS × $47.27 = $496336

   ALL the best

   Please do support us

   Any doubt please comment below

Thank you