Dillon Products manufactures various machined parts to customer specifications. The company uses a job-order costing system and applies overhead cost to the 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 related to January follow:
a. Raw materials purchases on account, $325,000
b. Raw materials requisitioned for production, $290,000 (80% direct materials and 20% indirect materials).
c. Labor cost incurred in the factor, $180,000 (one-third direct labor and two-thirds indirect labor)
d. Depreciation recorded on factory equipment, $75,000
e. Other manufacturing overhead cost was applied to production on the basis of 15,000 machine-hours actually worked during the month.
f. Manufacturing overhead cost was applied to production on the basis of $15,000 machine-hours actually worked during one 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.
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 on 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.
Dillon Products: Applying Overhead, Journal Entries, and T-accounts are examined.