EXERCISE 3–16 Dillon Products manufactures various machined parts to customer sp

Question

EXERCISE 3–16

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, it was estimated that the company would work 240,000 machine-hours and incur $4,800,000 in manufacturing overhead costs.

The company spent the entire month of January working on a large order for 16,000 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, $325,000.
2.

Raw materials requisitioned for production, $290,000 (80% direct materials and 20% indirect materials).
3.

Labor cost incurred in the factory, $180,000 (one-third direct labor and two-thirds indirect labor).
4.

Depreciation recorded on factory equipment, $75,000.
5.

Other manufacturing overhead costs incurred, $62,000 (credit Accounts Payable).
6.

Manufacturing overhead cost was applied to production on the basis of 15,000 machine-hours actually worked during the month.
7.

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.)

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.

Compute the unit product cost that will appear on the job cost sheet.

Explanation / Answer

a.

1.Raw Materials                                              $325,000
            Accounts Payable                                                                                    $325,000
2.Work in Process                                          $232,000
    Manufacturing overhead                               $58,000
              Raw Materials                                                                                           $290,000
3. Work in Process                                           $60,000
     Manufacturing Overhead                            $120,000
              Salaries and Wages Payable                                                                       $180,000
4. Manufacturing Overhead                               $75,000
              Accumulated Depreciation                                                                         $75,000
5.. Manufacturing Overhead                               $62,000
                    Accounts Payable                                                                                $62,000
6. WIP (15000 x ($4,800,000/240,000)) = $300,000
    Applied Manufacturing overhead

WIP Assume all are completed

b.

WIP Assume all are completed

c.    WIP (15000 x (4800000/240000)) = 300,000
Applied MO
Close the MO T account
Actual MO = Indirect Material (58000) + indirect labour (120000) + depr (75000) + other MO (62000)
Actual MO = 315,000
Applied MO = 300,000
So, under applied Manufacturing overhead  needs to be booked
Under applied Manufacturing overhead                                 $ 15,000
                      Manufacturing overhead                                                                            $15,000

Close Under Applied Manufacturing overhead to COGS

Cost of good sold                                                                    $15,000
       Under applied Manufacturing overhead                                                                    $15,000     

d.Product cost/ unit =$ 592,000/16000 = $37

Manufacturing Overhead 2) $58,000 6) $300,000 3) $120,000 4) $75,000 5) $62,000 Balance $15,000

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