Question

Very Very long question, I apologize in advance.

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 $4,335,000 in manufacturing overhead cost at an activity level of 578,000 machine-hours.

The company spent the entire month of January working on a large order for 12,100 custom-made machined parts. The company had no work in process at the beginning of January. Cost data relating to January follow:

1. Raw materials purchased on account, $321,000.
2. Raw materials used in production, $271,000 (80% direct materials and 20% indirect materials).
3. Labor cost accrued in the factory, $171,000 (one-third direct labor and two-thirds indirect labor).
4. Depreciation recorded on factory equipment, $63,500.
5. Other manufacturing overhead costs incurred on account, $84,400.
6. Manufacturing overhead cost was applied to production on the basis of 40,810 machine-hours actually worked during the month.
7. The completed job for 12,100 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 T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items from your journal entries to these T-accounts.

2. Prepare a journal entry for item (g) above.

3. If 10,900 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?

Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items from your journal entries to these T-accounts.

Manufacturing Overhead					Work in Process
End. Bal.					End. Bal.

Prepare a journal entry for item (g) above. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the entry to transfer from WIP to Finished goods.

Transaction	General Journal	Debit	Credit
g.

If 10,900 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? (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole dollar amount.)

Portion of job cost included in cost of goods sold

• 
  
• 
  

Answer 1

Predetermined overhead rate = Estimated manufacturing overhead / Estimated machine hours

Predetermined overhead rate = $4,335,000 / 578,000 = $7.5 per machine hour

1.

Manufacturing Overhead				Work in Process
b (271,000*20%)	$54,200	$306,075	f (40,810*$7.5)	b (271,000*80%)	$216,800
c (171,000*2/3)	114,000			c (171,000*1/3)	57,000	$579,875	g
d	63,500			f	306,075
e	84,400
End.Bal.	$10,025			End.bal.	$0

2.

Transaction	General Journal	Debit	Credit
g	Finished goods	$579,875
	Work in process		$579,875

3.

Portion of Job cost included in cost of goods sold = $579,875 / 12,100 * 10,900 = $522,367