Question
Harwood Company's job-order costing system applies overhead cost to jobs based on its machine-hours. The 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 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: Compute the overhead cost applied to Work in Process for the year and make the entry in your T-accounts.
2A. Compute the underapplied or overapplied overhead and show the balance in your Manufacturing Overhead T-account.
2B. Prepare a journal entry to close the company's underapplied or overapplied overhead to Cost of Goods Sold.
Required:
1. Assume 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: Compute the overhead cost applied to Work in Process for the year and make the entry in your T-accounts.
2A. Compute the underapplied or overapplied overhead and show the balance in your Manufacturing Overhead T-account.
2B. Prepare a journal entry to close the company's underapplied or overapplied overhead to Cost of Goods Sold.
Answers
GPT-4o mini
To begin, let's solve the problems step by step as requested.
### 1. Compute the Overhead Cost Applied to Work in Process
**Given**:
- Predetermined overhead rate = $2.40 per machine-hour
- Actual machine-hours worked = 75,000 machine-hours
**To compute the applied overhead**:
\[ \text{Applied Overhead} = \text{Machine-hours worked} \times \text{Predetermined overhead rate} \]
\[ \text{Applied Overhead} = 75,000 \, \text{machine-hours} \times 2.40 \, \text{per machine-hour} \]
\[ \text{Applied Overhead} = 180,000 \]
**T-Account Entry for Overhead Applied**:
- You will increase (credit) the Manufacturing Overhead account and increase (debit) the Work in Process account by the same amount.
**T-Accounts**:
**Work in Process**
```
|
|
Applied Overhead | 180,000
```
**Manufacturing Overhead**
```
|
180,000 |
|
```
---
### 2A. Compute the Underapplied or Overapplied Overhead
To determine whether the overhead is underapplied or overapplied, we first need to compare the actual overhead incurred with the applied overhead.
**Assuming the actual overhead costs incurred during the year are as follows** (for illustrative purposes, as you don't have given figures):
- Actual Manufacturing Overhead Costs Incurred = $200,000 (Assumed for calculation)
**To find underapplied or overapplied overhead**:
\[ \text{Underapplied/Overapplied Overhead} = \text{Actual Overhead} - \text{Applied Overhead} \]
\[ \text{Underapplied/Overapplied Overhead} = 200,000 - 180,000 \]
\[ \text{Underapplied Overhead} = 20,000 \]
**T-Account Balance for Manufacturing Overhead**:
**Manufacturing Overhead**
```
|
Applied Overhead | 180,000
Actual Overhead | 200,000
```
Total = 200,000 | Working out the balance:
\[
200,000 (actual) - 180,000 (applied) = 20,000 \text{ underapplied}
\]
---
### 2B. Prepare a Journal Entry to Close the Underapplied Overhead to Cost of Goods Sold
To close the underapplied overhead to Cost of Goods Sold, you will make the following journal entry:
**Journal Entry**:
```
Dr. Cost of Goods Sold 20,000
Cr. Manufacturing Overhead 20,000
```
This entry reflects transferring the underapplied overhead to the Cost of Goods Sold, recognizing that the actual incurred costs were greater than what was applied to production during the year.
**Final Note**: If you have the actual overhead incurred during the year, please provide those figures to modify the calculations accordingly.
### 1. Compute the Overhead Cost Applied to Work in Process
**Given**:
- Predetermined overhead rate = $2.40 per machine-hour
- Actual machine-hours worked = 75,000 machine-hours
**To compute the applied overhead**:
\[ \text{Applied Overhead} = \text{Machine-hours worked} \times \text{Predetermined overhead rate} \]
\[ \text{Applied Overhead} = 75,000 \, \text{machine-hours} \times 2.40 \, \text{per machine-hour} \]
\[ \text{Applied Overhead} = 180,000 \]
**T-Account Entry for Overhead Applied**:
- You will increase (credit) the Manufacturing Overhead account and increase (debit) the Work in Process account by the same amount.
**T-Accounts**:
**Work in Process**
```
|
|
Applied Overhead | 180,000
```
**Manufacturing Overhead**
```
|
180,000 |
|
```
---
### 2A. Compute the Underapplied or Overapplied Overhead
To determine whether the overhead is underapplied or overapplied, we first need to compare the actual overhead incurred with the applied overhead.
**Assuming the actual overhead costs incurred during the year are as follows** (for illustrative purposes, as you don't have given figures):
- Actual Manufacturing Overhead Costs Incurred = $200,000 (Assumed for calculation)
**To find underapplied or overapplied overhead**:
\[ \text{Underapplied/Overapplied Overhead} = \text{Actual Overhead} - \text{Applied Overhead} \]
\[ \text{Underapplied/Overapplied Overhead} = 200,000 - 180,000 \]
\[ \text{Underapplied Overhead} = 20,000 \]
**T-Account Balance for Manufacturing Overhead**:
**Manufacturing Overhead**
```
|
Applied Overhead | 180,000
Actual Overhead | 200,000
```
Total = 200,000 | Working out the balance:
\[
200,000 (actual) - 180,000 (applied) = 20,000 \text{ underapplied}
\]
---
### 2B. Prepare a Journal Entry to Close the Underapplied Overhead to Cost of Goods Sold
To close the underapplied overhead to Cost of Goods Sold, you will make the following journal entry:
**Journal Entry**:
```
Dr. Cost of Goods Sold 20,000
Cr. Manufacturing Overhead 20,000
```
This entry reflects transferring the underapplied overhead to the Cost of Goods Sold, recognizing that the actual incurred costs were greater than what was applied to production during the year.
**Final Note**: If you have the actual overhead incurred during the year, please provide those figures to modify the calculations accordingly.