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 $2.70 per machine-hour was based on a cost formula that estimates $243,000 of total manufacturing overhead for an estimated activity level of 90,000 machine-hours.

Required:

1. Assume that during the year the company works only 85,000 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.

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 $2.70 per machine-hour was based on a cost formula that estimates $243,000 of total manufacturing overhead for an estimated activity level of 90,000 machine-hours.

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. Work in Process (a) (Direct materials) (Direct labor) (Overhead) (a) 810,000 100,000 Manufacturing Overhead 31,000 9,000 82,000 37,000 8,000 66,000 (Maintenance) (Indirect materials) (Indirect labor) (Utilities) (Insurance) (Depreciation) Balance

Answer 1

Solution 1:

Overhead applied = 85000*$2.70 = $229,500

AK SK 25 26 Maintenance Indirect materials Indirect labor Utilities Insurance Depreciation Balance Manufacturing overhead 31000 229500 (a) applied overhead (85000*$2.70) 9000 82000 37000 8000 66000 3500 Direct materials Direct labor Overhead (a) Work in process 810000 100000 229500 59 60 61 et145 Sheet62 (3) Sheet147 Sheet583 (5) Sheet254

Solution 2A:

Underapplied overhead = $3500

Balance in manufacturing overhead account = $3500

Solution 2B:

Account title	Debit	Credit
Cost of goods sold	3500
Manufacturing Overhead		3500