Solved: Erkens Company uses a job costing system with

normal costing

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:
a. Purchased 180,000 pounds of materials on account; the cost was $5.00 per pound.
b. Issued 120,000 pounds of materials to production of which 15,000 pounds were used as
indirect materials.
c. Incurred direct labor costs of $240,000 and $40,000 of indirect labor costs.
d. Recorded depreciation on equipment for the month, $75,700.
e. Recorded insurance costs for the manufacturing property, $3,500.
f. Paid $8,500 cash for utilities and other miscellaneous items for the manufacturing plant.
g. Completed Job H11 costing $7,500 and Job G28 costing $77,000 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 percent
above cost.
i. 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. Compute the amount of overapplied or underapplied overhead and prepare a journal entry to
close overapplied or underapplied overhead into cost of goods sold on April 30.

ANSWER
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