High Country Furniture Company manufactures custom furniture only and uses a job order costing system to accumulate costs. Actual direct materials and direct labor costs are accumulated for each job, but a predetermined overhead rate is used to apply manufacturing overhead costs to individual jobs. Manufacturing overhead is applied on the basis of direct labor hours. In computing a predetermined overhead rate, the controller estimated that manufacturing overhead costs for 2000 would be $\$ 80,000$ and direct labor hours would be 20,000 . The following information is available for the year 2000 :

a. Direct materials purchased, $\$ 22,000$.

b. Direct materials used in production, $\$ 19,500$.

c. Wages and salaries paid for the year: direct labor ( 18,000 hours), $\$ 117,000$; indirect labor, $\$ 12,000$; sales and administrative salaries, $\$ 21,000$.

d. Depreciation on machinery and equipment, $\$ 9,000$.

e. Rent and utilities for building ( 75 percent factory), $\$ 16,000$.

f. Miscellaneous manufacturing overhead, $\$ 51,500$.

g. Advertising costs, $\$ 12,000$.

h. Manufacturing overhead is applied to Work-in-Process Inventory.

i. Eighty percent of Work-in-Process Inventory was completed and transferred to Finished Goods Inventory.

Required:

PROBLEM $10-6$ Applying Manufacturing overhead 1. Compute the predetermined overhead rate at which manufacturing overhead costs will be applied to jobs.

2. Set up T-accounts and post the transactions.

3. Compute the under- or overapplied manufacturing overhead. Prepare a journal entry to close Manufacturing Overhead and transfer the balance to Cost of Goods Sold.