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 $4,192,500 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 12,200 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, $314,000.

b. Raw materials used in production, $267,000 (80% direct materials and 20% indirect materials).

c. Labor cost accrued in the factory, $168,000 (one-third direct labor and two-thirds indirect labor).

d. Depreciation recorded on factory equipment, $63,200.

e. Other manufacturing overhead costs incurred on account, $84,700.

f. Manufacturing overhead cost was applied to production on the basis of 40,880 machine-hours actually worked during the month.

g. The completed job for 12,200 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 10,700 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.

	General Journal	Debit	Credit
a	Raw material	$314,000
	Accounts payable		$314,000
b	Work in process ($267,000*80%)	$213,600
	Manufacturing overhead (267,000*20%)	53,400
	Raw material		$267,000
c	Work in process (168,000*1/3)	$56,000
	Manufacturing overhead (168,000*2/3)	112,000
	Wages payable		$168,000
d	Manufacturing overhead	$63,200
	Accumulated depreciation-Factory equipment		$63,200
e	Manufacturing overhead	$84,700
	Accounts payable		$84,700
f	Work in process ($4,192,500/559,000) * 40,880	$306,600
	Manufacturing overhead		$306,600

2.

Manufacturing Overhead		Work In Process
Beg.bal	$0				Beg.bal	$0
b	53,400	$306,600	f		b	213,600
c	112,000				c	56,000
d	63,200				f	306,600
e	84,700
End.bal	$6,700				End.bal	$576,200

3.

	General Journal	Debit	Credit
g	Finished goods ($213,600+56,000+306,600)	$576,200
	Work in process		$576,200

4.

Cost of goods sold = $576,200 / 12,200 * 10,700 = $505,356