Question

Check m 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 $4,230,000 in manufacturing overhead cost at an activity level of 564,000 machine-hours. The company spent the entire month of January working on a large order for 12,500 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, $310,000. b. Raw materials used in production, $271,000 (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, $63,600. e. Other manufacturing overhead costs incurred on account, $84,700. f. Manufacturing overhead cost was applied to production on the basis of 40,810 machine-hours actually worked during the month. g. The completed job for 12,500 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	Sl No.	Account titles and explanation					Debit	Credit
	a.	Materials inventory					310000
		Accounts payable						310000
		(Material purchased on account)
	b.	Work in process inventory			(271000*80%)		216800
		Manufacturing overhead			(271000*20%)		54200
		Materials inventory						271000
		(Materials used in production)
	c.	Work in process inventory			(168000*1/3)		56000
		Manufacturing overhead			(168000*2/3)		112000
		Salaries and wages payable						168000
		(Labor cost accrued)
	d.	Manufacturing overhead					63600
		Accumulated depreciation-Equipment						63600
		(Depreciation recorded)
	e.	Manufacturing overhead					84700
		Accounts payable						84700
		(Other manufacturing overhead cost incurred)
	f.	Work in process inventory				(Note:1)	306075
		Manufacturing overhead						306075
		(Manufacturing overhead applied)
	Note:1
	Predetermined overhead rate=Estimated manufacturing overhead/Estimated machine hours=4230000/564000=$ 7.5 per machine hour
	Manufacturing overhead applied=Actual machine hours*Predetermined overhead rate=40810*7.5=$ 306075
2		Manufacturing overhead
	Ref.	Debit	Credit	Balance
	b.	54200		54200
	c.	112000		166200
	d.	63600		229800
	e.	84700		314500
	f.		306075	8425
		Work in process
	Ref.	Debit	Credit	Balance
	b.	216800		216800
	c.	56000		272800
	f.	306075		578875
3	Sl No.	Account titles and explanation					Debit	Credit
	g.	Finished goods inventory					578875
		Work in process inventory						578875
		(Completed order transferred)
4	Cost of 12500 parts=$ 578875
	Cost of 10500 parts=Cost of goods sold=578875*(10500/12500)=$ 486255