Harwood Company 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 the company would work 80,000 machine-hours and incur $192,000 in manufacturing overhead costs for the year.
Required:
1. Compute the company's predetermined overhead rate.
2. Assume that during the year the company actually worked only 75,000 machine-hours and incurred $184,000 of manufacturing overhead costs. Compute the amount of under applied or over applied overhead for the year.
3. Explain why the manufacturing overhead was under applied or over applied for the year.