Dillon Products manufactures various machined parts to customer specifications.

Question

Dillon Products manufactures various machined parts to customer specifications. The company uses a job-order costing system and applies overhead costs 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 $4,327,500 in manufacturing overhead cost at an activity level of 577,000 machine-hours.

      The company spent the entire month of January working on a large order for 8,300 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, $313,000.
b. Raw materials requisitioned for production, $267,000 (80% direct and 20% indirect).
c. Labor cost incurred in the factory, $174,000, of which $58,000 was direct labor and $116,000 was indirect labor.
d. Depreciation recorded on factory equipment, $62,500.
e. Other manufacturing overhead costs incurred, $85,600 (credit Accounts Payable).
f.

Manufacturing overhead cost was applied to production on the basis of 40,720 machine-hours actually worked during the month.

g.

The completed job 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.)

  

Explanation / Answer

Overhead rate per hour=total manufacturing overhead/noof hours=$4,327,500/577,000=$7.5

Cost of the JOb

particulars    calculations cost Direct material $267,000*80% $213,600 Direct labour $58,000 Applied overhead (40,720*$7.5) $305,400 Tootal cost $577,000

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