Luzadis Company makes furniture using the latest automated technology. The compa
ID: 2343232 • 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 $1,520,000 of total manufacturing overhead for an estimated activity level of 76,000 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: 64,000 1,471, 000 Raw materials Work in process (includes overhead applied of $64,000) Finished goods (includes overhead applied of $204,800) $ 14,000 $ 90,500 $ 289,600 $ 1,429,900 Cost of goods sold (includes overhead applied of $1,011,200) 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? Complete this question by entering your answers in the tabs below. Required 1Required 2Required 3 Required 4 Compute the underapplied or overapplied overhead nderapplied overhead cost Required 1 Required 2>Explanation / Answer
Predetermined OH rate = 1520000/76000 = 20 per hour
Overhead applied = 64000 machine hours * 20 = 1280,000
Required – 1
Underapplied Overhead Cost = 1471,000 – 1280,000 = 191,000
Required - 2
Required - 3
In this model, under applied OH shall be allocated amoung WIP, FG and COGS ...... in the ratio of OH already allocated to them . i.e 64000 : 204800 : 1011200
WIP = 191000 * 64000 / 1280,000 = 9550
FG = 191000 * 204800 / 1280,000 = 30560
COGS = 191000 * 1011200 / 128000 = 1508900
Required - 4
Net Income will be 40110 more if the underapplied overhead is allocated rather than closed entirely to cost of goods sold.
Debit Credit Cost of goods sold 191,000 Manufacturing Overhead 191000Related Questions
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