Harwood Company's job-order costing system applies overhead cost to jobs based on its machine-hours. The predetermined overhead rate of $2.50 per machine-hour was based on a cost formula that estimates $242,500 of total manufacturing overhead for an estimated activity level of 97,000 machine-hours.

Compute the overhead cost applied to Work in Process for the year and make the entry in your T-accounts.

Manufacturing Overhead

Work in Process

Debit

Credit

Debit

Credit

(Maintenance)

38,000

(a)

(Direct materials)

880,000

(Indirect materials)

9,700

(Direct labor)

107,000

(Indirect labor)

70,000

(Overhead) (a)

(Utilities)

44,000

(Insurance)

8,700

(Depreciation)

62,000

Balance

**Required 1**

To solve this problem, we'll go through the following steps:

1. **Calculate the overhead cost applied to Work in Process (WIP) for the year.**
2. **Record the calculated overhead in the T-accounts.**

### Step 1: Calculate the Overhead Cost Applied to Work in Process

The overhead cost applied to Work in Process is calculated using the predetermined overhead rate, which is based on machine-hours.

- **Predetermined overhead rate** = $2.50 per machine-hour
- **Estimated machine-hours** = 97,000 machine-hours

The total overhead cost applied to Work in Process (WIP) for the year is calculated as:

\[
\text{Overhead Applied} = \text{Predetermined Overhead Rate} \times \text{Actual Machine-Hours}
\]

However, since the actual machine-hours are not provided, we assume the predetermined overhead rate was used accurately and apply it based on the estimated machine-hours:

\[
\text{Overhead Applied} = 2.50 \times 97,000 = 242,500
\]

### Step 2: Record the Overhead Applied to Work in Process in T-Accounts

Given that the total applied overhead is $242,500, we now record this in the T-accounts.

#### Manufacturing Overhead

\[
\begin{array}{|c|c|}
\hline
\textbf{Debit} & \textbf{Credit} \\
\hline
\text{Maintenance} & 38,000 \\
\text{Indirect materials} & 9,700 \\
\text{Indirect labor} & 70,000 \\
\text{Utilities} & 44,000 \\
\text{Insurance} & 8,700 \\
\text{Depreciation} & 62,000 \\
\hline
\text{Total Debit} & 232,400 \\
\hline
(a) & 242,500 \quad \text{(Credit)} \\
\hline
\end{array}
\]

#### Work in Process

\[
\begin{array}{|c|c|}
\hline
\textbf{Debit} & \textbf{Credit} \\
\hline
\text{Direct materials} & 880,000 \\
\text{Direct labor} & 107,000 \\
(a) \text{Overhead Applied} & 242,500 \\
\hline
\text{Total Debit} & 1,229,500 \\
\hline
\end{array}
\]

### Summary of the T-Accounts:

- The **Manufacturing Overhead** account shows a credit of $242,500 to represent the overhead applied to jobs.
- The **Work in Process** account has a corresponding debit of $242,500, along with the direct materials and direct labor costs, totaling $1,229,500.

This overhead application ensures that the costs are correctly allocated to Work in Process.

Would you like further details, or do you have any questions about this? Here are 5 related questions you might consider:

1. What is the purpose of using a predetermined overhead rate in job-order costing?
2. How does the application of overhead impact the calculation of total manufacturing costs?
3. What happens if actual overhead costs differ significantly from applied overhead?
4. Why is it important to accurately estimate machine-hours in a job-order costing system?
5. How would overapplied or underapplied overhead be treated at the end of the accounting period?

**Tip:** Always verify the accuracy of the estimated activity levels (like machine-hours) since they directly influence the overhead applied to jobs.

Learn how to calculate the overhead cost applied to Work in Process (WIP) in a job-order costing system using a predetermined overhead rate. Follow a detailed solution example with step-by-step calculations based on machine-hours and predetermined rates.

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