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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 $217,500 of total manufacturing overhead for an estimated activity level of 87,000 machine-hours. Required: 1. Assume that during the year the company works only 82,000 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.

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Question Completion:

Manufacturing Overhead Account

Maintenance     $24,000

Indirect materials  8,300

Indirect labor      82,000

Utilities               36,000

Insurance             7,300

Depreciation     65,000

Total costs   $222,600

Work in Process

Direct materials    $740,000

Direct labor               83,000

Answer:

Harwood Company

1. The amount of overhead cost that would be applied to Work in Process for the year is:

= $205,000.

2. T- Accounts:

Work in Process

Direct materials    $740,000

Direct labor               83,000

Applied overhead  205,000

Manufacturing overhead

Maintenance     $24,000

Indirect materials  8,300

Indirect labor      82,000

Utilities               36,000

Insurance             7,300

Depreciation     65,000

Applied overhead: WIP    $205,000

Underapplied overhead        17,600

Total costs   $222,600   $222,600

2A. The amount of underapplied overhead for the year is:

= $17,600

2B. Manufacturing overhead

Maintenance     $24,000

Indirect materials  8,300

Indirect labor      82,000

Utilities               36,000

Insurance             7,300

Depreciation     65,000

Applied overhead: WIP    $205,000

Underapplied overhead       17,600

Total costs   $222,600   $222,600

Explanation:

a) Data and Calculations:

Predetermined overhead rate per machine-hour = $2.50

Estimated total manufacturing overhead = $217,500

Estimated activity level = 87,000

Actual results from production during the year:

Machine-hours worked = 82,000

Applied overhead costs = $205,000 (82,000 * $2.50)

Total manufacturing costs incurred = $222,600

Underapplied overhead = $17,600

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