Savallas Company is highly automated and uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:

Computer-hours		86,000
Fixed manufacturing overhead cost	$	1,277,000
Variable manufacturing overhead per computer-hour	$	3.80

During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company%u2019s warehouse. The company%u2019s cost records revealed the following actual cost and operating data for the year:

Computer-hours		50,000
Manufacturing overhead cost	$	1,007,000
Inventories at year-end:
Raw materials	$	420,000
Work in process	$	160,000
Finished goods	$	1,010,000
Cost of goods sold	$	2,780,000

Required:

1.	Compute the company%u2019s predetermined overhead rate for the year. (Round your answer to 2 decimal places.)

Predetermined overhead rate

$ per hour

2.	Compute the underapplied or overapplied overhead for the year. (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount. Input the amount as a positive value.)

(Click to select) Underapplied Overapplied overhead cost

$

3.1	Assume the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry. (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.)

General Journal	Debit	Credit
(Click to select) Finished goods Manufacturing overhead Accounts payable Cost of goods sold Work in process Depreciation expense Salaries expense Raw materials
(Click to select) Salaries expense Depreciation expense Finished goods Accounts payable Manufacturing overhead Work in process Cost of goods sold Raw materials

3.2

Will this entry increase or decrease net operating income?

	This entry will increase net operating income.
	This entry will decrease net operating income.