Predetermined Overhead Rate; Disposition of Underapplied or Overapplied Overhead Bieler & Cie of Altdorf Switzerland, makes furniture using the latest automated technology. The cornpamiy uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The currency in Switzerland is the Swiss franc, which is denoted by Sfr. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:

During the year, a glut of furniture on the market resulted in cutting back production and a buildup of furniture in the company’s warehouse. The company’s cost records revealed the following actual cost and operating data for the year:

Required:

1. Compute the company’s predetermined overhead rate.

2. Compute the underapplied or overapplied overhead.

3. Assume that the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry.

4. Assume that the company allocates any underapplied or overapplied overhead to Work in Process, Finished Goods, and Cost of Goods Sold on the basis of the amount of overhead applied that remains in each account at the end of the year. Prepare the journal entry to show the allocation for the year.

5. How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated rather than closed directly to Cost of Goods Sold?

Transcribed Image Text:

Machine-hours 75,000 Manufacturing overhead cost Sfr900,000