3 Luzadis Company makes furniture using the latest automated technology. The com
ID: 2329489 • Letter: 3
Question
3 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 $1,152,000 of total manufacturing overhead for an estimated activity level of 72,000 machine-hours 2 points 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: Skipped Machine-hours Manufacturing overhead cost Inventories at year-end: 55,000 1,102,000 Raw materials Work in process (includes overhead applied of $52,800) Finished goods (includes overhead applied of $167,200) $18,000 $ 114,600 $362,900 1,432,500 eBook Cost of goods sold (includes overhead applied of $660,000) Print 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 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 appropriate journal entry 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? ReferencesExplanation / Answer
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Difference in cost of goods sold
222000-166500=55500
Net operating income will be 55,500 greater if the under applied overhead is closed to Work in Process, Finished Goods, and Cost Sold rather than being closed to Cost of Goods Sold.
Predetermined overhead rate: Estimated total manufacturing overhead (a) 1152000 Estimated total Machine hours (b) 72000 Predetermined overhead rate (a) / (b) 16Related Questions
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