Question: 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:
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Machine-hours
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83,000
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Fixed manufacturing overhead cost
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$
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1,276,000
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Variable manufacturing overhead per computer-hour
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$
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4.00
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During the year, a glut 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 40,000
Manufacturing overhead cost$837,000
Inventories at year-end:
Raw materials$430,000
Work in process (includes overhead applied of 46,488) $150,000
Finished goods (includes overhead applied of 216,944) $1,020,000
Cost of goods sold (includes overhead applied of 511,368) $2,750,000
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1a.
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Compute the company's predetermined overhead rate for the year. (Round your answer to 2 decimal places.)
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Predetermined overhead rate __________
1b. Compute the underapplied or overapplied overhead for the year. (Round your intermediate calculations to 2 decimal places.
1c. 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.)
1d. 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 $46,488 for work in process, $216,944 for finished goods, and $511,368 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.)
1e. 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.)
net operating income will be_____ if the ___________