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 shows 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 theyear.

Transcribed Image Text:

Manufacturing Work in ProcesS Overhead (Utilities) (Insurance) (Maintenance) (Indirect materials) (Indirect labor) (Depreciation) 14,000? 9,000 33,000 7,000 65,000 40,000 (Direct materials) (Direct labor) (Overhead) 530,000 85,000