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 following estimates were used in preparing the predetermined overhead rate at the beginning of the year:

Machine-hours		84,000
Fixed manufacturing overhead cost	$	1,271,000
Variable manufacturing overhead per computer-hour	$	3.20

During the year, a glut 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		50,000
Manufacturing overhead cost	$	981,000
Inventories at year-end:
Raw materials	$	450,000
Work in process (includes overhead applied of 54,990)	$	200,000
Finished goods (includes overhead applied of 274,950)	$	1,010,000
Cost of goods sold (includes overhead applied of 586,560)	$	2,730,000

Required:

1.	Compute the companys predetermined overhead rate for the year. (Round your answer to 2 decimal places.)

2.	Compute the underapplied or overapplied overhead for the year. (Round your intermediate calculations to 2 decimal places.)

3.

Assume the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations to 2 decimal places.)

4.

Assume that the company allocates any underapplied or 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 $54,990 for work in process, $274,950 for finished goods, and $586,560 for cost of goods sold. Prepare the journal entry to show the allocation for the year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your intermediate calculations to 2 decimal places.)

5.	How much higher or lower will net operating income be for the year if the underapplied or overapplied overhead is allocated rather than closed directly to Cost of Goods Sold? (Round your intermediate calculations to 2 decimal places.)

Garrison 15e Recheck 2014-12-16

References

eBook & Resources

Worksheet