Harwood Company uses a job-order costing system. Overhead costs are applied to jobs on the basis of machine-hours. At the beginning of the year, management estimated that the company would incur $192,000 in manufacturing overhead cost and work 80,000 machine-hours.
1. Compute the company's predetermined overhead rate.
2. Assume that during the year the company works only 75,000 machine-hours and incurs the following costs in the Manufacturing Overhead and Work in Process accounts:
Manufacturing Overhead Work in Process
(Maintenance) 21,000 (Direct Materials) 710,000
(Indirect materials) 8,000 (Direct labor) 90,000
(Indirect labor) 60,000 (Overhead)
Copy the data in the T-accounts above onto your answer sheet. 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.
3. Compute the amount of under applied or over applied overhead for the year and show the balance in your Manufacturing Overhead T-account. Prepare a journal entry to close out the balance in this account to Cost of Goods Sold.
4. Explain why the manufacturing overhead was under applied or over applied for the year.
The expert applies overhead, t-accounts and journal entries.