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 $1,860,000 of factory overhead costs and use 60,000 machine hours.

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

a.	Purchased 214,000 pounds of materials on account; the cost was $5.10 per pound.
b.	Issued 137,000 pounds of materials to production, of which 23,500 pounds were used as indirect materials.
c.	Incurred direct labor costs of $325,000 and $57,000 of indirect labor costs.
d.	Recorded depreciation on equipment for the month, $79,100.
e.	Recorded insurance costs for the manufacturing property, $5,200.
f.	Paid $10,200 cash for utilities and other miscellaneous items for the manufacturing plant.
g.	Completed Job H11 costing $9,200 and Job G28 costing $85,500 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 11,100 machine hours during April.

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1) Compute Erkens Company’s predetermined overhead rate for the year.

2) Prepare journal entries to record the events that occurred during April.

Answer 1

1) the predetermined overhead rate is 1860000/60000 = 31

2) journal entries

Direct material a/c. Dr 1091400

To creditor a/c . 1091400

Work in progress a/c . Dr 578850

Manufacturing OH a/c. Dr 119850

To direct material 698700

(Being direct material charged to wip and indirect to overhead)

Work in progress a/c. Dr 325000

Manufacturing overhead dr 57000

To wages payable a/c . 382000

(Being labour charged to wip and overhead)

Manufacturing oha/c. Dr 79100

To Depreciation a/c. 79100

Manufacturing oh a/c . Dr 5200

To insurance a/c . 5200

Manufacturing oh a/c . Dr 10200

To utilities expense A/c. 10200

Work in progress a/c dr 344100

To manufacturing oh . 344100

(Being over head charged )

Finished goods a/c dr 94700

To wip a/c. 94700

(Being goods transferred to finished giods)

Cost of goods sold a/c 85500

To finished goods a/c. 85500

Manufacturing overhead a/c . 72750

To cost of goods sold . 72750

Cash a/c. Dr 115425

To sales . 115425