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 $1,615,000 of total manufacturing overhead for an estimated activity level of 85,000 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 companys warehouse. The companys cost records revealed the following actual cost and operating data for the year:

Machine-hours		77,000
Manufacturing overhead cost	$	1,574,000
Inventories at year-end:
Raw materials	$	14,000
Work in process (includes overhead applied of $73,150)	$	94,000
Finished goods (includes overhead applied of $277,970)	$	357,200
Cost of goods sold (includes overhead applied of $1,111,880)	$	1,428,800

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. Underapplied overhead cost $ 8 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 View journal entry worksheet x No Event General Journal Debit Credit 1 1 15,000 Cost of goods sold Manufacturing overhead 15,000 Required 1 Required 2 Required 3 Required 4 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list View journal entry worksheet No Event General Journal Debit Credit 1 1 1,050 Work in process Finished goods 2,850 11,100 Cost of goods sold Manufacturing overhead 15,000 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? underapplied Net operating income will be $ 3,900 greater if the overhead is allocated rather than closed entirely to cost of goods sold