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: 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% above cost. i. Used 7,700 machine hours during April.

Answer 1

Answer:

Predetermined overhead rate is $30

Explanation:

1- Predetermined Overhead rate is :

Budgeted Factory Overhead / Budgeted Machine hours

$1,980,000 / 66,000 hours = $30 per machine hour.

The predetermined overhead rate is estimated by company management for the per unit overhead. In this case the machine hours are used as cost driver and the estimated overhead is divided by machine hours to identify overhead cost per machine hour.