Edwards Company applies manufacturing overhead to jobs on the basis of machine h

Question

Edwards Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $1,600,000 for the year, and machine usage is estimated at 200,000 hours.

In January, $173,000 of overhead costs are incurred and 22,000 machine hours are used. For the remainder of the year, $1,720,000 of additional overhead costs are incurred and 214,000 additional machine hours are worked.

Instructions
(a) Compute the manufacturing overhead rate for the year.
(b) What is the amount of over- or underapplied overhead at January 31? How should this amount be reported in the financial statements prepared on January 31?

Explanation / Answer

a) manufacturing overhead rate =$1,600,000/200,000 =$8 / hour b) incurred-------------------$173,000 Applied($8*22000)-------$176,000 --------------------------------------- overapplied overhead-----$3,000 ----------------------------------------- This amount should be reported as an unearned revenue in the current liability section of the January 31 balance sheet.

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