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Problem 3-12 (Algo) Predetermined Overhead Rate; Disposing of Underapplied or Overapplied Overhead [LO3-4] Luzadis Company makes furniture using the latest automated technology. The compony uses

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Problem 3-12 (Algo) Predetermined Overhead Rate; Disposing of Underapplied or Overapplied Overhead [LO3-4] Luzadis Company makes furniture using the latest automated technology. The compony 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 $880,000 of total manufacturing overthead for an estimated actlvity level of 88,000 machine hours. During the year, a large quantity of furniture on the market resulted in cutting back production and a bulidup of furniture in the company's warehouse. The company's cost records revealed the following actual cost and operating data for the year: Required: 1. Compute the underapplied of overapplied overhead. 2 Assume that the company closes any underapplied or overapplied overthead 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 approprlate journal entry. 4. How much higher or lower wilt net operating income be if the underapplied or overapplled overhead is allocated to Work in Process, Finlshed Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold

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