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Exercise 4-31 (Algo) Cost Flows; Applying Overhead [LO 4-3, 4-4, 4-5]
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 $1,596,000 of factory overhead costs and use 57,000 machine hours.
Erkens Company recorded the following events during the month of April:
a. Purchased 208,000 pounds of materials on account; the cost was $4.80 per pound.
b. Issued 134,000 pounds of materials to production, of which 22,000 pounds were used as indirect materials.
c. Incurred direct labor costs of $310,000 and $54,000 of indirect labor costs.
d. Recorded depreciation on equipment for the month, $78,500.
e. Recorded expired insurance costs for the manufacturing property, $4,900.
f. Paid $9,900 cash for utilities and other miscellaneous items for the manufacturing plant.
g. Completed Job H11 costing $8,900 and Job G28 costing $84,000 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 10,500 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.

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1. Erkens Company’s predetermined annual overhead rate is $28 per machine hour.

2. Journal Entries to record the events that occurred during April for Erkens Company are as follows:

Journal Entries:

a. Debit Raw materials Inventory $998,400

Credit Accounts Payable $998,400

b. Debit Work in Process $643,200

Debit Factory Overhead $105,600

Credit Raw Materials $748,800

c. Debit Work in Process $310,000

Debit Factory Overhead $54,000

Credit Payroll Expenses $364,000

d. Debit Factory Overhead $78,500

Credit Depreciation Expenses $78,500

e. Debit Factory Overhead $4,900

Credit Insurance Expenses $4,900

f. Debit Factory Overhead $9,900

Credit Utility Expense $9,900

g. Debit Finished Goods Inventory $92,900

Credit Work in Process $92,900

h. Debit Accounts Receivable $113,400

Credit Sales Revenue $113,400

Debit Cost of goods sold $84,000

Credit Finished Goods Inventory $84,000

i. Debit Work in Process $294,000

Credit Factory Overhead $294,000

3-a) The amount of overapplied overhead is $41,100.

3-b) The journal entry to close overapplied overhead into the cost of goods sold on April 30 is as follows:

Journal Entry:

Debit Factory Overhead (overapplied) $41,100

Credit Cost of goods sold  $41,100

Data and Calculations:

Estimated factory overhead costs = $1,596,000

Estimated machine hours = 57,000

Predetermined overhead rate = $28 ($1,596,000/57,000)

April Transactions:

a. Raw materials Inventory $998,400 Accounts Payable $998,400

b. Work in Process $643,200 Factory Overhead $105,600 Raw Materials $748,800

c. Work in Process $310,000 Factory Overhead $54,000 Payroll Expenses $364,000

d. Factory Overhead $78,500 Depreciation Expenses $78,500

e. Factory Overhead $4,900 Insurance Expenses $4,900

f. Factory Overhead $9,900 Utility Expense $9,900

g. Finished Goods Inventory $92,900 Work in Process $92,900

Job G28 $8,900 Job G28 $84,000

h. Accounts Receivable $113,400 Sales Revenue $113,400

Cost of goods sold $84,000 Finished Goods Inventory $84,000

i. Work in Process $294,000 Factory Overhead $294,000

($28 x 10,500)

Factory Overhead account:

Materials                         $105,600

Payroll                              $54,000

Depreciation Expenses  $78,500

Insurance Expenses         $4,900

Utility Expense                 $9,900

i. Work in Process                          $294,000

Total Overhead           $252,900

Overapplied overhead  $41,100

Learn more about the predetermined overhead rate at https://brainly.com/question/26372929

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