Applying Overhead; T-Accounts; Journal Entries [L0l, L02, L04, L05, L07]Medusa Products us...

Applying Overhead; T-Accounts; Journal Entries [L0l, L02, L04, L05, L07]

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 overhead 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.