3.Dixon Company has a job-order costing system and applies manufacturing overhead cost to products on the basis of machine hours. The following estimates were used in preparing the predetermined overhead rate for the most recent year:

Machine hours. 100,000

Manufacturing overhead cost. 2,000,000

During the most recent year, a severe recession in the company's industry caused the curtailment of production and a buildup of inventory in the company's warehouses. The company's cost records revealed the following actual cost and operating data for the year:

Machine hours 80.000

Manufacturing overhead cost. 1,845,000

Amount of applied overhead in inventories at year-end:

Work in process 200,000

Finished goods 350,000

Amount of applied overhead

in cost of goods sold for the 1,450,000

year

Required:

a. Compute the company's predetermined overhead rate for the year and the amount of underapplied or overapplied overhead for the year.

b. Determine the difference between net income for the year if the underapplied or overapplied overhead is allocated to the appropriate accounts rather than closed directly to Cost of Goods Sold.