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 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 $4,275,000 in manufacturing overhead cost at an activity level of 570,000 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: Raw materials purchased on account, $319,000. Raw materials used in production, $267,000 (80% direct materials and 20% indirect materials). Labor cost accrued in the factory, $153,000 (one-third direct labor and two-thirds indirect labor). Depreciation recorded on factory equipment, $63,300. Other manufacturing overhead costs incurred on account, $85,300. Manufacturing overhead cost was applied to production on the basis of 40,550 machine-hours actually worked during the month. 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 10,000 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?

Explanation / Answer

Transa Accounst Title Dr Cr a Raw Material Inventory $319,000 Accounts payable $319,000 b) Work in Process Inventory (267000*80%) $213,600 Manufacturing Overhead $53,400 Raw material Inventory $267,000 c) Work in Process Inventory (153000*1/3) $51,000 Manufacturing Overhead $102,000 Wages payable $153,000 d) Manufacturing Overhead $85,300 Accounts payable $85,300 e Work in Process Inventory 304125 Manufacturing Overhead (4275000/570000*40550) 304125 f Finished Goods Inventory $568,725 Work in Process Inventory (213600+51000+304125) 568725 ans 2 Work In process Inventory Raw Material Inventory $213,600 Finished goods Inventory $568,725 Factory Labor $51,000 Manufacturing Overhead 304125 ending bal 0 Manufacturing Overhead Raw Material Inventory $53,400 Work in Process Inventory 304125 Factory Labor $102,000 Accounts payable $85,300 Overappled $63,425 Dr Cr ans 3 Cost of good sold $568,725 g Finished Goods Inventory $568,725 ans 4 Cost of good sold 454980 Finished Goods Inventory 454980 (568725/12500*10000) If any doubt please comment

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