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 $1,680,000 of factory overhead costs and use 60,000 machine hours.
Erkens Company recorded the following events during the month of April:
- Purchased 182,000 pounds of materials on account; the cost was $5.10 per pound.
- Issued 121,000 pounds of materials to production, of which 15,500 pounds were used as indirect materials.
- Incurred direct labor costs of $245,000 and $41,000 of indirect labor costs.
- Recorded depreciation on equipment for the month, $75,900.
- Recorded expired insurance costs for the manufacturing property, $3,600.
- Paid $8,600 cash for utilities and other miscellaneous items for the manufacturing plant.
- Completed Job H11 costing $7,600 and Job G28 costing $77,500 during the month and transferred them to the Finished goods inventory account.
- Shipped Job G28 to the customer during the month. The job was invoiced at 30% above cost.
- Used 7,900 machine hours during April.
Required:
1. Compute Erkens Company's 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. Journal entry to close overapplied or underapplied overhead into cost of goods sold on April 30.
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