Question
Erkens Company uses a job costing system with normal costing and applies factory overhead on the basis of machine hours. At the beginning of the
Erkens Company uses a job costing system with normal costing and applies factory overhead on the basis of machine hours. At the beginning of the year, management estimated that the company would incur $2,244,000 of factory overhead costs and use 66,000 machine hours.
Erkens Company recorded the following events during the month of April:
- Purchased 194,000 pounds of materials on account; the cost was $5.70 per pound.
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Issued 127,000 pounds of materials to production, of which 18,500 pounds were used as indirect materials.
- Incurred direct labor costs of $275,000 and $47,000 of indirect labor costs.
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Recorded depreciation on equipment for the month, $77,100.
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Recorded expired insurance costs for the manufacturing property, $4,200.
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Paid $9,200 cash for utilities and other miscellaneous items for the manufacturing plant.
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Completed Job H11 costing $8,200 and Job G28 costing $80,500 during the month and transferred them to the Finished goods inventory account.
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Shipped Job G28 to the customer during the month. The job was invoiced at 30% above cost.
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Used 9,100 machine hours during April.
Required:
1. Compute Erkens Companys predetermined overhead rate for the year.
2. Prepare journal entries to record the events that occurred during April.
3-a. Compute the amount of overapplied or underapplied overhead.
3-b. Prepare a journal entry to close overapplied or underapplied overhead into cost of goods sold on April 30.
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