Luzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The predetermined overhead rate was based on a cost formula that estimates $1,152,000 of total manufacturing overhead for an estimated activity level of 72,000 machine-hours.

During the year, a large quantity 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 datafor the year:

Machine-hours 55,000

Manufacturing overhead cost $ 1,102,000

Inventories at year-end:

Raw materials $18,000

Work in process (includes overhead $114,600

applied of $52,800)

Finished goods (includes overhead $362,900

applied of $167,200)

Cost of goods sold (includes overhead $1,432,500

applied of $660,000)

1.Assume that the company allocates any underapplied or overappliedoverhead proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Help prepare the appropriate journal entry.

2.Net income will be ? greater if the underpaid overhead is allocated rather than closed entirely to cost of goods sold.