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 $900,000 of total manufacturing overhead for an estimated activity level of 75,000 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 data for the year: 60,000 850,000 $ Machine-hours Manufacturing overhead cost Inventories at year-end: Raw materials Work in process (includes overhead applied of $36,000) Finished goods (includes overhead applied of $180,000) Cost of goods sold (includes overhead applied of $504,000) $ 30,000 $ 100,000 $ 500,000 $ 1,400,000 Required: 1. Compute the underapplied or overapplied overhead. 2. Assume that the company closes any underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry. 3. Assume that the company allocates any underapplied or overapplied overhead proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the appropriate journal entry. 4. How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated to Work in Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute the underapplied or overapplied overhead. Overapplied overhead cost Underapplied overhead cost Required 1 Required 2 Required 3 Required 4 Assume that the company closes any underapplied or overapplied overhead to cost of Goods Sold. Prepare the appropriate journal entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Journal entry worksheet 1 Record the allocation of the underapplied/overapplied overhead to various accounts. Note: Enter debits before credits. General Journal Debit Credit Transaction 1 Record entry Clear entry View general journal No journal entry required Accounts payable Accounts receivable Accumulated depreciation Cash Cost of anods sold Depreciation expense Finished goods Manufacturing overhead Raw materials Sales Sellina and administrative expenses Raw materials Sales Selling and administrative expenses Wages payable Work in process Required 1 Required 2 Required 3 Required 4 How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated to work in Process, Finished Goods, and cost of Goods Sold rather than being closed to cost of Goods Sold? Net operating income will be if the overhead is allocated rather than closed entirely to cost of goods sold.
