Question

Custom Metal Works produces castings and other metal parts to customer specifications. The company uses a job-order costing system and applies overhead costs 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 S4,320,000 in manufacturing overhead cost at an activity level of 576,000 machine-hours. The company had no work in process at the beginning of the year. The company spent the entire month of January working on one large order—Job 382, which was an order for 8,000 machined parts. Cost data for January follow:

a. Raw materials purchased on account, $312,000.
b. Raw materials used in production, $254,000 (80% direct materials and 20% indirect materials).
c. Labor cost accrued in the factory, $171,000 (one-third direct labor and two-thirds indirect labor).
d. Depreciation recorded on factory equipment, $64,000.
e. Other manufacturing overhead costs incurred on account, $84,200.
f. Manufacturing overhead cost was applied to production on the basis of 40,670 machine-hours actually worked during the month.
g. The completed job for 12,400 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 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 for Job 382.

Answer 1

Custom Metal Works

1. Journal Entries to record items (a) through (f) above. Ignore item (g):

a. Debit Raw materials $312,000

Credit Accounts payable $312,000

To record raw materials purchased on account.

b. Debit Work in Process $203,200

Debit Manufacturing Overhead $50,800

Credit Raw materials $254,000

To record the raw materials used in production.

c. Debit Work in Process $57,000

Debit Manufacturing Overhead $114,000

Credit Factory Labor Payable $171,000

To record the labor cost accrued in the factory.

d. Debit Manufacturing Overhead $64,000

Credit Depreciation Expense $64,000

To record factory equipment depreciation.

e. Debit Manufacturing Overhead $84,200

Credit Expenses Payable $84,200

To record other manufacturing overheads incurred on account.

f. Debit Work in Process $305,025

Credit Manufacturing Overhead $305,025

To record overhead applied on the basis of machine-hours.

2. T-accounts for:

Manufacturing Overhead

Account Titles Debit Credit

Raw materials $50,800

Factory labor 114,000

Depreciation expense 64,000

Other expenses 84,200

Work in Process $305,025

Work-in-Process

Account Titles Debit Credit

Raw materials $203,200

Factory labor 57,000

Mfg overhead 305,025

Finished Goods $565,225

3. Journal Entry for item (g):

Debit Finished Good $565,225

Credit Work in Process $565,225

To record the transfer to the finished goods inventory.

4. Computation of the unit product cost for Job 382:

Total cost of production = $565,225

Total machined parts worked = 8,000

Unit cost = $70.65

Step-by-step explanation:

a) Data and Calculations:

Estimated Manufacturing Overhead Cost = $4,320,000

Estimated Machine-Hours = 576,000

Job 383 Parts Worked = 8,000 machined parts

Predetermined overhead rate = $4,320,000/576,000 = $7.50

Applied manufacturing overhead = $7.50 * 40,670 = $305,025