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 $2.60 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 would be applied
	=$2.60 per machiner hour *95000 machine hours
	=$247000
		Debit	Credit
	Job Work In progress	$       2,47,000
	Manufacturing Overhead		$                      2,47,000
	(to apply overhead to WIP)
2A)	Unedrapplied overhead
	Budgeted overhead		$                      2,60,000
	Applied Overhead		$                      2,47,000
	Under-applied		$                         13,000
	Manufacturing Overhead
	Overhead Costs	$ 2,60,000.00	Work In Progress	$ 2,47,000.00
	Balance			13000
2B)
		Debit	Credit
	Cost of good sold	$           13,000
	Manufacturing overhead		$                         13,000
	( to record under applied overhead)