hardwood company uses a job order costing system that applies overhead cost to j

Question

hardwood company uses a job order costing system that applies overhead cost to jobs on the basis of machine hours. The companys predetermined overhead rate of $2.50 Per machine hour was based on the cost formula that estimates $237,500 of total manufacturing overhead for an estimated activity level of 95,000 machine hours.

1.

Manufacturing Overhead

Maintenance                          36,000                        ???                (a)

Indirect Materials                    9,500

Indirect Labor                         75,000

Utilities                                    44,000

Insurance                                8,500

Depreciation                            56,000

Balance:                                    ???        

Work in Process:

Direct Materials              860,000

Direct Labor                   105,000

Overhead (a)                    ????

Required:

1. Assume that during the year the company works only 90,000 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 under applied or overapplied overhead for the year and show the balance in your manufacturing overhead T account.

2b. Prepare a journal entry to close the companies under applied or overapplied overhead cost of goods sold.

Explanation / Answer

Computation of applied overhead cost Applied overhead cost shall be computed by multipying the machine hrs actual with the predetermined overhead rate Actual Machine Hrs 90000 Predetermined OH rate $2.50 Applied OH Cost Actual Machine hrs*Predetermined OH Rate 90000*$2.5 $225,000 1 Calculation the OH cost applied to WIP as shown below: Manufacturing OH Particulars Amount Particulars Amount Maintenance $36,000 WIP $225,000 Indirect Materials $9,500 Indirect Labour $75,000 Utilities $44,000 Balance $4,000 Insurance $8,500 Depreciation $56,000 $229,000 $229,000 WIP DM $860,000 FG-B/F $1,190,000 DL $105,000 OH $225,000 $1,190,000 $1,190,000 2-a Calculate the under applied OH Under applied OH shall be computed by deducting the applied OH from the actual OH Applied OH $225,000 Actual OH $229,000 Under applied OH Actual OH -Applied OH $229000-$225000 $4,000 b In the Books of H Company Journal Entry Date Description Dr Amount Cr Amount Cost of Goods Sold To Manufacturing OH to record the underapplied OH to Cost of Goods sold

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