Week 6 Lab

EXERCISE 3–10

Applying Overhead; Journal Entries; T-

Accounts [LO2 – CC4; LO3 – CC5; LO4 – CC8; LO6 – CC12]

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 200,000 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 12,000
custom-made machined parts. The company had no work in process at the beginning
of January. Cost data relating to January follow:

a. Raw materials purchased on account, $452,000.

b. Raw materials requisitioned for production, $390,000 (80% direct materials

and 20% indirect materials).

c. Labour cost incurred in the factory, $180,000 (one-third direct labour and two-
thirds indirect labour).

d. Depreciation recorded on factory equipment, $175,000.

e. Other manufacturing overhead costs incurred, $92,000 (credit accounts

payable).

f. Manufacturing overhead cost applied to production on the basis of 15,000

machine-hours actually worked during the month.

g. Completed job moved into finished goods warehouse on January 31 to await

delivery to customer. (In computing the dollar amount for this entry, remember
that the cost of a completed job consists of direct materials, direct labour,
and applied overhead.)

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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).

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