Question

Exercise 3-9 Applying Overhead; T-accounts; Journal Entries (LO3-1, L03-2, 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 $242,500 of total manufacturing overhead for an estimated activity level of 97,000 machine-hours. Required: 1. Assume that during the year the company works only 92,000 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. 28. Prepare a journal entry to close the company's underapplied or overapplied overhead to Cost of Goods Sold.

Answer 1

Answer-

1. Applied Overhead = Actual Machine Hours x Predetermined overhead rate
= 92000 x $2.50 = $230,000

Manufacturing Overhead				Work in Process
Maintenance	$      38,000	$        230,000	a	Direct Materials	$ 880,000
Indirect Materials	$        9,700			Direct Labor	$ 107,000
Indirect Labor	$      70,000			Overhead (a)	$      230,000
Utilities	$      44,000
Insurance	$        8,700
Depreciation	$      62,000
Balance	$        2,400

2.
Since Overhead incurred is $232,400 which is more than Applied Overhead, therefore Overhead is under-applied by $2400 i.e. $232,400 - $230,000

Balance in Manufacturing Overhead is $2400 as shown above

3.

Account Titles	Debit	Credit
Cost of Goods Sold	$        2,400
Manufacturing Overhead		$             2,400
(Under applied overhead charged to cost of goods sold)

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