Dillon Products manufactures various machined parts to customer specifications. The company uses a joborder 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 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 relating to January follow: a. Raw materials purchased 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 factory, 180,000 (one-third direct labor and two-thirds indirect labor). d. Depreciation recorded on factory equipment, 75,000 . e. Other manufacturing overhead costs incurred, 62,000 (credit Accounts Payable). 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 applied overhead.)
(b) Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items from your journal entries to these T-accounts.

Manufacturing overhead costs are all expenses spent during the manufacture of goods, except direct labour and direct material costs.
Fixed manufacturing overhead costs and variable manufacturing overhead costs are additional categories for manufacturing overhead costs.
Factory overheads and indirect production expenses are other names for manufacturing overheads.
These expenses are indirect since it is difficult to link them specifically to each product.
Because of this, manufacturing overhead expenses are added to product costs using a pre-set overhead absorption rate.
The manufacturing overhead expenses per base unit of activity are represented by the overhead absorption rate (also called cost driver).
Labour costs, labour hours, and machine hours are common cost factors.
Because they are capitalized as part of the cost of inventories rather than being expensed in the period in which they are incurred, manufacturing overhead expenses are product costs (inventoriable costs).

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