Question

Harwood Company uses a job-order costing system that applies overhead cost to jobs on the basis of machine-hours. The company's predetermined overhead rate of $2.80 per machine-hour was based on a cost formula that estimates $232,400 of total manufacturing overhead for an estimated activity level of 83,000 machine-hours. Required:

1. Assume that during the year the company works only 78,000 machine-hours and incurs the following costs in the Manufacturing Overhead and Work in Process accounts: Compute the amount of overhead cost that would be applied to Work in Process for the year and make the entry in your T-accounts.

2A. Compute the amount of underapplied or overapplied overhead for the year and show the balance in your Manufacturing Overhead T-account.

2B. Prepare a journal entry to close the company's underapplied or overapplied overhead to Cost of Goods Sold.

Compute the amount of overhead cost that would be applied to Work in Process for the year and make the entry in your T-accounts.

Manufacturing Overhead					Work in Process
(Maintenance)	24,000		(a)		(Direct materials)	740,000
(Indirect materials)	8,300				(Direct labor)	93,000
(Indirect labor)	82,000				(Overhead) (a)
(Utilities)	36,000
(Insurance)	7,300
(Depreciation)	65,000
Balance

Answer 1

Compute the amount of overhead cost that would be applied to Work in Process for the year and make the entry in your T-accounts.

	Manufacturing Overhead Work in Process (Maintenance) 24,000 Work in process (78000*2.8) (a) 218400 (Direct materials) 740,000 (Indirect materials) 8,300 (Direct labor) 93,000 (Indirect labor) 82,000 (Overhead) (a) 218400 (Utilities) 36,000 (Insurance) 7,300 (Depreciation) 65,000 Balance 4200

b) Under applied overhead = Applied overhead-Actual overhead

= 218400-222600

Underapplied overhead = 4200

c) Journal entry

Date	account and explanation	debit	credit
	Cost of goods sold	4200
	Manufacturing overhead		4200
	(To record under applied overhead)