Answer:
Dillon Products
1. Journal entries for (a) through (f)
a) Debit Raw Materials Account $325,000
Credit Accounts Payable $325,000
To record the purchase of raw materials on account.
b) Debit Work in Process $232,000
Debit Manufacturing overhead $58,000
Credit Raw materials account $290,000
To record the transfer of raw materials to WIP and Overhead.
c) Debit Work in Process $60,000
Debit Manufacturing overhead $120,000
Credit Wages & Salaries $180,000
To record the transfer of labor cost to WIP and Overhead.
d) Debit Manufacturing overhead $75,000
Credit Depreciation Expense- Equipment $75,000
To record the transfer of depreciation expense to Overhead.
e. Debit Manufacturing Overhead $62,000
Credit Expenses Payable $62,000
To record other overhead incurred on account.
f. Debit Work In Process $300,000
Credit Manufacturing Overhead $300,000
To record the overhead applied on the basis of 15,000 machine hours at $20 per machine hour.
2. T-accounts:
Manufacturing overhead
Account Title Debit Credit
Raw materials $58,000
Wages & Salaries 120,000
Depreciation- Equip. 75,000
Expense Payable 62,000
Work in Process $300,000
Finished Goods 15,000
Work in Process Account
Account Title Debit Credit
Raw materials account $232,000
Wages & Salaries 60,000
Manufacturing overhead 300,000
Finished Goods $592,000
Finished Goods
Account Title Debit Credit
Work in Process $592,000
Manufacturing overhead 15,000
3. Journal Entry for item (g):
Debit Finished Goods $607,000
Credit Work in Process $592,000
Credit Manufacturing overhead $15,000
To record the cost of manufactured parts, including the under-applied overhead.
4. Cost of goods sold = 10,000 *$607,000/16,000 = $379,375
(While Ending Inventory = 6,000 *$607,000/16,000 = $227,625.)
Explanation:
a) Data and Calculations:
Estimated manufacturing overhead = $4,800,000
Estimated machine hours = 240,000
Overhead rate = $4,800,000/240,000 = $20 per machine hour
Actual cost data for January:
Number of machine parts = 16,000
Raw materials purchased on account = $325,000
Raw materials cost:
Direct materials = $232,000 (80% of $290,000)
Indirect materials = $58,000 (20% of $290,000)
Labor cost
Direct labor = $60,000 ($180,000 * 1/3)
Indirect labor = $120,000 ($180,000 * 2/3)
Manufacturing overhead:
Depreciation = $75,000
Others = $62,000
Indirect materials = $58,000
Indirect labor = $120,000
Total actual overhead incurred = $315,000
Machine hours actually worked = 15,000
b) Other Accounts
1. Expenses Payable
Account Title Debit Credit
Manufacturing overhead 62,000
2. Depreciation Expense - Equipment
Account Title Debit Credit
Manufacturing overhead $75,000
3. Raw Materials Account
Account Title Debit Credit
Accounts Payable $325,000
Work in Process $232,000
Manufacturing overhead 58,000
4. Accounts Payable
Account Title Debit Credit
Raw Materials $325,000
c) The manufacturing overhead applied is $300,000 (15,000 machines hours actually used multiplied by $20 overhead rate), while the actual overhead costs incurred total $315,000. So there is an under-applied overhead of $15,000 which is charged to Finished Goods in order to obtain the correct cost of 16,000 custom-made machined parts.
