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:
1. Assume that during the year the company works only 75,000 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.
2. Compute the amount of under applied or over applied overhead for the year and show the balance in your Manufacturing Overhead T-account. Prepare a journal entry to close the company's under applied or over applied overhead to Cost of Goods Sold.
3. Explain why the manufacturing overhead was under applied or over applied for the year.

Transcribed Image Text:

Manufacturing Work in Process Overhead 21,000 8,000 60,000 32,000 7,000 56,000 (Direct materials) (Direct labor) Overhead) (Maintenance) (Indirect materials) (Indirect labor) (Utilities) (Insurance) (Depreciation) 710,000 90,000