In-Class Exercise #7:
Dillon Products manufactures various machined 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 $4,800,000 in manufacturing
overhead cost at an activity level of 240,000 machine-hours.
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:
a. Raw materials purchased on account, $325,000.
b.Raw materials requisitioned for production, $290,000 (80% direct materials and
c. Labor cost incurred in the factory, $180,000 (one-third direct labor and two-
thirds indirect labor).
d.Depreciation recorded on factory equipment, $75,000.
Other manufacturing overhead costs incurred, $62,000 (credit Accounts
f. Manufacturing overhead cost was applied to production on the basis of 15,000
machine-hours actually worked during the 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