Harwood Company 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 192,000 in manufacturing overhead costs and work 80,000 machine-hours.
(d) Explain why the manufacturing overhead was underapplied or overapplied for the year.

The term underapplied overhead refers to a situation that arises when overhead expenses amount to more than what a company actually budgets for in order to run its operations.
Underapplied overhead is normally reported as a prepaid expense on a company's balance sheet and is balanced by inputting a debit to the cost of goods sold (COGS) section by the end of the year.
Costs of goods sold are the direct cost associated with the production of goods sold by a company.
The amount of underapplied overhead is referred to as an unfavorable variance.
Underapplied overhead occurs when overhead expenses are more than what a company actually budgets.
This figure is reported on a company's balance sheet as a prepaid expense or short-term asset as a debit, then offset by a debit to the cost of goods sold before the end of the fiscal year and a credit to prepaid expenses.
Underapplied overhead is an unfavorable variance because a business goes over budget.
It is generally not considered negative because analysts and managers look for patterns that may point to changes in the business environment or economic cycle.

Calculate the company's predetermined overhead rate as follows:

Predetermined overhead rate =[tex]\frac{estimated manufacturing overhead costs}{total estimated machine hours}[/tex]

= [tex]\frac{640000}{80000}[/tex]Machine hours

= $8 Per machine hour

Therefore, predetermined overhead rate is $8 per machine hour.

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