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 $680,000 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 company’s warehouse. The company’s cost records revealed the
following actual cost and operating data for the year:
Machine-hours
76,000
Manufacturing overhead cost
$
637,000
Inventories at year-end:
Raw materials
$
20,000
Work in process (includes overhead applied of $36,480)
$
115,800
Finished goods (includes overhead applied of $91,200)
$
289,500
Cost of goods sold (includes overhead applied of $480,320)
$
1,524,700
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. (If no entry is required for a
transaction/event, select "No journal entry required" in the first
account field.)
3. Assume that the company allocates any underapplied or over
appliedoverhead 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.)
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?
