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 $1,980,000 of factory overhead costs and use 66,000 machine hours.

Erkens Company recorded the following events during the month of April:

1. Purchased 180,000 pounds of materials on account; the cost was $5.00 per pound.

2. Issued 120,000 pounds of materials to production, of which 15,000 pounds were used as indirect materials.

3. Incurred direct labor costs of $240,000 and $40,000 of indirect labor costs.

4. Recorded depreciation on equipment for the month, $75,700.

5. Recorded expired insurance costs for the manufacturing property, $3,500.

6. Paid $8,500 cash for utilities and other miscellaneous items for the manufacturing plant.

7. Completed Job H11 costing $7,500 and Job G28 costing $77,000 during the month and transferred them to the Finished goods inventory account.

8. Shipped Job G28 to the customer during the month. The job was invoiced at 35% above cost.

9. Used 7,700 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.

Problem was on Requirement 2: will post my general journal

1a.)	Materials inventory	900,000
	Accounts payable		900,000
2.)	Working-in-process inventory	600,000 (wrong)
	Factory overhead	75,000
	materials inventory		675,000 (wrong)
3C.)	Work-in-process-inventory	280,000 (wrong)
	Factory overhead		40,000(wrong)
	Accured payroll		240,000(wrong)
4D.)	Factory overhead	75,700
	accumulated depreciation		75,700
5E.)	Factory overhead	3,500
	Prepaid insurance		3,500
6F.)	Factory overhead	8,500
	cash		8,500
7G.)	Finished goods inventory	84,500
	Work-in-process invenotry		84,500
8H.)	COGS	77,000
	Finished Goods inventory		77,000
9.	Accounts receivable	26,950(WRONG)
	Sales		26,950(WRONG)
10I.)	Work-in-process	231,000
	factory overhead		231,000

Answer 1

1	Pre Determined Overhead Rate	Amount
a	Factory overhead costs	1980000
b	Machine hours	66000
c	Pre Determined Overhead Rate (a/b)	30

2	Particulars	Debit	Credit
	Raw Material	900,000
	Accounts Payable		900,000
	Work In Progress (105000*5)	525,000
	Manufacturing Overhead (15000*5)	75,000
	Raw Mateial (120000*5)		600,000
	(Material isssued to production and some used indirectly)
	Work In Progress	240,000
	Manufacturing Overhead	40,000
	Salary and Wages Payable		280,000
	Manufacturing Overhead	75,700
	Depreciation		75,700
	Manufacturing Overhead	3,500
	Insurance Payable		3,500
	Manufacturing Overhead	8,500
	Cash		8,500
	Finishied Goods (7500+77000)	84,500
	Work In Progress		84,500
	Cost of Goods Sold (job G28)	77,000
	Finished Goods		77,000
	Accounts Receivable (77000*135%)	103,950
	Sales		103,950
	Work In Progress (7700*30)	231,000
	Manufacturing Overhead		231,000

3	Applied Overheads	231,000
	Actual Overheads	202,700
	Overapplied Overheads	28,300

4	Particulars	Debit	Credit
30th April	Manufacturing Overhead	28,300
	Cost of Goods Sold (job G28)		28,300