FROM SYSTEM DESIGN - JOB ORDER COSTING

Savallas Company is highly automated and uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:

Computer hours 85,000

Manufacturing overhead cost $1, 530, 000

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 following actual cost and operating data for the year:

Computer hours 60,000

Manufacturing overhead cost $ 1,350,000

Inventories at the end

Raw materials $400,000

Work in progress $160,000

Finished goods $1,040,000

Cost of goods sold $ 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 that the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate entry.

4. Assume that the company allocates any overapplied overhead to Work in Process, Finished Goods, and Cost of Goods Sold on the basis of the amount of overhead applied during the year that remains in each account at the end of the year. These amounts are $43,200 for Work in Process, $280,800 for Finished Goods, and $756,000 for Cost of Goods Sold. Underapplied overhead is charged directly to Cost of Goods Sold. Prepare the journal entry to show the disposal of under/overapplied overhead.