Question

EXERCISE 3-10 Applying Overhead; Journal Entries; T-accounts LO3-10, L03-2 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 $4,800,000 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 for 16,000 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, $325,000. b. Raw materials used in production, $290,000 (80% direct materials and 20% indirect materials). c. Labor cost accrued in the factory, $180,000 (one-third direct labor and two-thirds indirect labor). d. Depreciation recorded on factory equipment, $75,000. Page 128 e. Other manufacturing overhead costs incurred on account, $62,000. f. Manufacturing overhead cost was applied to production on the basis of 15,000 machine-hours actually worked during the month. g. 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.) 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 10,000 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?

Answer 1

Solution:

S.No. Debit Credit a. Requirement 1 Accounts Title Raw Materials Inventory Accounts Payable (Record purchase of materials on account) $ 3,25,000 $ 3,25,000 b. $ 2,32,000 $ 58,000 Work in Process Inventory Manufacturing Overhead Raw Materials Inventory (Record materials used in production) $ 2,90,000 C. $ 60,000 $ 1,20,000 Work in Process Inventory Manufacturing Overhead Wages Payable (Record labor used in production) $ 1,80,000 d. $ 75,000 Manufacturing Overhead Accumulated Depreciation - Equipment (Record depreciation on factory equip.) $ 75,000 e. $ 62,000 Manufacturing Overhead Accounts Payable (Record other manufacturing OH incurred) $ 62,000 f. $ 3,00,000 Work in Process Inventory Manufacturing Overhead (15,000 hrs * $20) (Record overhead applied to production) $ 3,00,000

Note: Calculation of Predetermined Manufacturing OH Rate = Estimated Manufacturing OH / Estimated Machine hrs Predetermined OH Rate = $4,800,000 / 240,000 = $20 per machine hours

Requirement 2 Manufacturing Overhead Work-in-Process Inventory Beg. Bal. b. Beg. Bal. b. C. C. $58,000 $3,00,000 f. $1,20,000 $75,000 $62,000 $15,000 $2,32,000 $5,92,000 g. $60,000 $3,00,000 d. f. e. End. Bal. End. Bal. $0

S.No. Credit Debit $ 5,92,000 Requirement 3 Accounts Title Finished Goods Inventory Work in Process Inventory (Record cost of jobs completed moved into FG) ($232,000 + $60,000 + $300,000) $ 5,92,000 Requirement 4 Job's Cost included in Cost of Goods Sold Cost of Goods Completed ($592,000 / 16,000) *10,000 $ 3,70,000