PROBLEM 5-18
Applying Overhead; T-Accounts; Journal Entries [LO3, LO4, LO5, LO7]
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 the company would incur $170,000 in manufacturing overhead costs for the year and work 85,000 machine-hours.
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:
Utilities
Insurance
Maintenance
Indirect materials
Indirect labour
Depreciation
Manufacturing Overhead
14,000
?
Direct materials
9,000
Direct labour
33,000
Overhead
7,000
65,000
40,000
Work in Process
530,000
85,000
?
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 show the balance in your Manufacturing Overhead T-account. Prepare a journal entry to
properly dispose of the balance.
4. Explain why the manufacturing overhead was underapplied or overapplied for the year
