Question

Medusa Products uses a job-order costing system. Overhead costs are applied to jobs on the basis of machine-hours. At the beginning of the year, management estimated that 85,000 machine-hours would be required for the period's estimated level of production. The company also estimated $106,250 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $0.75 per machine-hour.

Required:

1. Compute the company's predetermined overhead rate.

2. Assume that during the year the company actually works only 80,000 machine-hours and incurs the following costs in the Manufacturing Overhead and Work in Process accounts:

Copy the data in the T-accounts above onto your answer sheet. Compute the amount of over- head cost that would be applied to Work in Process for the year, and make the entry in your T-accounts.

3. Compute the amount of underapplied or overapplied overhead for the year, and show the balance in your Manufacturing Overhead T-account. Prepare a journal entry to close out the balance in this account to Cost of Goods Sold.

4. Explain why the manufacturing overhead was underapplied or overapplied for the year.

Answer 1

Predetermined oues head seite conmated Fixed our head cestimated estimated machine bas = $106250 - $1.25 / by 85000 rate $1.25+ $0.75 - $2/hr (2) Fixed overhead appled = 8'60oox #2:00 2 $160000 5000 Manufacturing our head cetiletes 14000 By COGS $8000 Sremuance 9000 Bu elle opereres. $160000 Maintanence 33000 oy WIP Alc. Andurection 7000 Indyect 65000 labou. Deprecation 40000 $168000 $168000 DM D2 Overhead WIP $530000 $850006 $180000

Amount of undee applied oues heade U$168000 '- $160000 - 2 $3000 Ole Joumal entey COQS Drita $ 8000 Manufacturing overhead $3000 Due to the actual work houss is low than the estimated work houss ie 85000 hence for the difference in the estimated fixed our head l hours there is undee applied & overhead