Harwood Company uses a job-order costing system that applies overhead cost to jo

Question

Harwood 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 $2.60 per machine-hour was based on a cost formula that estimates $213,200 of total manufacturing overhead for an estimated activity level of 82,000 machine-hours. Required 1. Assume that during the year the company works only 77,000 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.

Explanation / Answer

(Maintenance)

(Maintenance)

Solution: 1. Manufacturing Overhead

(Maintenance)

23,000 200,200 (a) (Indirect materials) 8,200 (Indirect labor) 75,000 (Utilities) 34,000 (Insurance) 7,200 (Depreciation) 58,000 Balance 5,200 Work in Process (Direct materials) 730,000 (Direct labor) 92,000 (Overhead) (a)   200,200 Working Notes: Pre determined overhead rate = $2.60 per machine hours Since , the company works only 77,000 machine hours Hence, The amount of overhead cost applied to work in process = Pre determined overhead rate x Machine hours worked = $2.60 per machine hour x 77,000 machine hours = $200,200 This is the value of (a) required in above T accounts = $200,200 Manufacturing Overhead b

(Maintenance)

23,000 200,200 (a) c (Indirect materials) 8,200 d (Indirect labor) 75,000 e (Utilities) 34,000 f (Insurance) 7,200 g (Depreciation) 58,000 h=(b+c+d+e+f+g -a) Balance 5,200 2A. UNDERAPPLIED manufacturing overhead 5,200 Notes: From our calculation in 1. Manufacturing Overhead applied is $200,200 but our Actual manufacturing overhead cost is 205,400 that is ( 23,000 + 8,200+ 75,000 +34,000 +7,200 +58,000 = 205,400) hence, it is under applied by $205,400 - $200,200 = $5,200 2B. General Journal Debit Credit Cost of goods sold 5,200 Manufacturing overhead 5,200 Notes: The closing balance of manufacturing overhead is transferred to Cost of goods sold account.

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