All applicable problemi PROBLEM 3-21 Predetermined Overhead Rate; Disposition of Underapplied Overhead (L01, LO7] Savallas Company is highly automated and uses computers to control manut The company uses a job-order costing system and applies manufacturing overheads on the basis of computer-hours. The following estimates were used in preparing the prede overhead rate at the beginning of the year: omputers to control manufacturing operations facturing overhead cost to products preparing the predetermined Computer-hours... Fixed manufacturing overhead cost .............. Variable manufacturing overhead per computer-hour ..... 85,000 $1,275,000 $3.00 During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company's warehouse. The company's cost records revealed the follow. ing actual cost and operating data for the year: 60,000 $1,350,000 Computer-hours... Manufacturing overhead cost .... Inventories at year-end: Raw materials ....... Work in process .......... Finished goods ........ Cost of goods sold ...... $400,000 $160,000 $1,040,000 $2,800,000 Required: 1. Compute the company's predetermined overhead rate for the year. 2. Compute the underapplied or overapplied overhead for the year. 3. Assume the company closes any underapplied or overapplied overhead directly to COSE Goods Sold. Prepare the appropriate entry. any allocates any underapplied or overapplied overhead to Work in Pro- cess, Finished Goods, and Cost of Goods Sold on the basis of the amount of overnca during the year that remains in each account at the end of the year. These amounts are for Work in Process, $280,800 for Finished Goods, and $756,000 for Cost of Goods Prepare the journal entry to show the allocation. 5. How much higher or lower will net operating income be for the year if the underar overapplied overhead is allocated rather than closed directly to Cost of Goods ar. These amounts are $43,200 and $756,000 for Cost of Goods Sold. ctly to Cost of Goods Sold