EXERCISE 3–9 Applying Overhead; T-accounts;

Journal Entries LO3–1, LO3–2, LO3–4 Harwood Company uses a job-order costing system that applies overhead cost to jobs on the basis of machinehours.

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 underapplied or overapplied overhead for the year and show the balance in your Manufacturing Overhead T-account. Prepare a journal entry to close the company’s underapplied or overapplied overhead to Cost of Goods Sold.
3. Explain why the manufacturing overhead was underapplied or overapplied for the year.