Question

Exercise 3-9 Applying Overhead; T-accounts; Journal Entries (L03-1, LO3-2, LO3-4] 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 $2.60 per machine-hour was based on a cost formula that estimates $260,000 of total manufacturing overhead for an estimated activity level of 100,000 machine-hours. Required: 1. Assume that during the year the company works only 95,000 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.

Answer 1

1)	overhead applied
	predetermined overhead rate * actual machine hours
	2.60*95000
	247000
	Manufacturing overhead						work in process
	Maintenance		41,000	247000	(a)		Direct mat	910,000
	indirect materials		10,000				direct labor	110,000
	indirect labor		80,000				OH (a)	247000
	utilities		47,000
	insurance		9,000
	Depreciation		63,000
	Balance		3,000
2-a)	under applied		manufacturing overhead			3,000
2-b)	Event	General Journal			Debit	Credit
	1)	Cost of goods sold			3,000
		Manufacturing overhead				3,000
3)	the manufacturing overhead was under applied as the overhead applied on the basis of
	predetermined overhead rate was less than the actual overhead incurred