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 year, management estimated that the company would incur $1,769,000 of factory overhead costs and use 61,000 machine hours Erkens Company recorded the following events during the month of April: a. Purchased 184,000 pounds of materials on account; the cost was $5.20 per pound b. Issued 122,000 pounds of materials to production, of which 16,000 pounds were used as indirect materials. c. Incurred direct labor costs of $250,000 and $42,000 of indirect labor costs. d. Recorded depreciation on equipment for the month, $76,100. e. Recorded insurance costs for the manufacturing property, $3,700. f. Paid $8,700 cash for utilities and other miscellaneous items for the manufacturing plant. g. Completed Job H11 costing $7,700 and Job G28 costing $78,000 during the month and transferred them to the Finished goods inventory account. h. Shipped Job G28 to the customer during the month. The job was invoiced at 35% above cost. i. Used 8,100 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. Prepare a journal entry to close overapplied or underapplied overhead into cost of goods sold on April 30. Complete this question by entering your answers in the tabs below Req 1 Req 2 Req 3A Req 3B Compute Erkens Company's predetermined overhead rate for the year overhead rate per machine hour < Req 1 Req 2 >

Answer 1

1. Computation of Predetermined Overhead

Predetrmined overhead rate=Estimated factory overhead/Estimated machine hours

Predetermined overhead rate=1769000/61000=$29 per machine hour

2. Journal Entries:
Sl No.	Particulars	Debit	Credit
a.	Raw materials	$9,56,800.00
	Accounts payable (184000*5.20)		$9,56,800.00
	(Purchase of Raw material)
b.	Work-in-process(106000*5.20)	$5,51,200.00
	Manufacturing overhead (16000*5.20)	$83,200.00
	Raw materials		$6,34,400.00
	(Material issued to production of which some were used as indirect materials)
c.	Work-in-process	$2,50,000.00
	Manufacturing overhead	$42,000.00
	Salaries & Wages payable		$2,92,000.00
	(Incurred direct & indirect labor cost)
d.	Manufacturing overhead	$76,100.00
	Depreciation expenses		$76,100.00
	(Depreciation on equipment)
e.	Manufacturing overhead	$3,700.00
	Insurance payable		$3,700.00
	(Insurance cost for manufacturing property Due)
f.	Manufacturing overhead	$8,700.00
	Cash		$8,700.00
	(Cash paid for utilities and other miscellaneous items for the manufacturing plant)
g.	Finished goods	$85,700.00
	Work-in-process		$85,700.00
	(Completed jobs transferred to finished goods)
h.	Cost of goods sold	$78,000.00
	Finished goods		$78,000.00
	(Cost of Job G28 transferred to cost of goodsSold)
	Accounts receivable	$1,05,300.00
	Sales		$1,05,300.00
	(Job invoiced at 35% above cost .78000*135%)
i.	Work-in-process	$2,34,900.00
	Manufacturing overhead		$2,34,900.00
	(Actual machine hours*Predetermined overhead rate=8100*29=234900

3. Computaton of Under and over applied Overhead
Actual Overhead (83200+42000+76100+3700+8700)	$2,13,700.00
Applied Overhead	$2,34,900.00
Overapplied Overhead	$21,200.00

4. Journal Entries:
Sl No.	Particulars	Debit	Credit
a.	Manufacturing overhead	$21,200.00
	Cost of goods sold		$21,200.00