Question

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 $2.40 per machine-hour was based on a cost formula that estimates $192,000 of total manufacturing overhead for an estimated activity level of 80,000 machine-hours.
Required:

a. Assume that during the year the company works only 78,000 machine-hours and incurs $225,000 Manufacturing Overhead. Compute the amount of overhead cost that would be applied to Work in Process for the year.
b. Compute the amount of underapplied or overapplied overhead for the year and show the balance in your Manufacturing Overhead T-account.
c. Prepare a journal entry to close the company's underapplied or overapplied overhead to Cost of Goods Sold.

Answer 1

Answer:

a) 187,200 applied overhead

b( Overhead T-account

       Overhead

   Debit        Credit      

                      187,200

   225,000

                       37,800  

  225,000   225,000

 Balance:  0

c)

Cost of goods sold 37,800 debit

    Factory overhead   37,800 credit

Explanation:

78,000 machine hours x 2.40 dollar per hour = 187,200 applied overhead

incurred overhead: 225,000

applied overhead     187,200

as the actual overhead is above the applied amount we underapplied we need to increase it by the difference:

225,000 - 187,200= 37,800