Question

Exercise 3-9 Applying Overhead; T-accounts; Journal Entries (LO3-1, LO3-2, LO3-4) 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 $2.50 per machine-hour was based on a cost formula that estimates $202,500 of total manufacturing overhead for an estimated activity level of 81,000 machine-hours. Required: 1. Assume that during the year the company works only 76,000 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. Complete this question by entering your answers in the tabs below. Reg 1 Reg 2A Reg 2B 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.

Answer 1

Requirement 1:

Manufacturing Overhead					Work in process
(Maintenance)	$22,000	$190,000	(a)		(Direct materials)	$720,000
(Indirect materials)	$8,100				(Direct labor)	$91,000
(Indirect labor)	$65,000				(Overhead) (a)	$190,000
(Utilities)	$35,000
(Insurance)	$7,100
(Depreciation)	$57,000
Balance	$4,200

*Overhead applied = Actual machine hours x Predetermined rate = 76,000 machine hours x $2.50 = $190,000

Requirement 2A:

Actual manufacturing overhead	$194,200
Applied manufacturing overhead	($190,000)
Under-applied manufacturing overhead	$4,200

Requirement 2B:

Account title and explanation	Debit	Credit
Cot of goods sold	$4,200
Manufacturing overhead		$4,200
[To record under-applied]