Luzadis Company makes furniture using the latest automated technology. The compa
ID: 2331362 • Letter: L
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 predetermined overhead rate was based on a cost formula that estimates $765,000 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 Manufacturing overhead cost Inventories at year-end: 69,000 $ 719,000 Raw materials Work in process (includes overhead applied of $62,100) Finished goods (includes overhead applied of $105,570) $ 14,000 $ 183,000 $ 311,100 1,335,900 Cost of goods sold (includes overhead applied of $453,330) 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?Explanation / Answer
1) Predetermine overhead rate = 765000/85000 = 9 per machine hour
Applied overhead = 69000*9 = 621000
Actual overhead = 719000
Under applied overhead = 621000-719000 = 98000
2) Journal entry :
3) Journal entry :
4) Net income will higher by $26460 if under applied overhead is allocated rather than closed entirely to cost of goods sold
Date account and explanation debit credit Cost of goods sold 98000 Manufacturing overhead 98000 (To record under applied overhead)Related Questions
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