Chapter 03 Homework Help Save & Ex 3 Problem 3-12 Predetermined Overhead Rate; D

Question

Chapter 03 Homework Help Save & Ex 3 Problem 3-12 Predetermined Overhead Rate; Disposing of Underapplied or Overapplied Overhead [LO3- 4] 6668 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 035formula that estimates $1,207000 of total manufacturing overhead for an estimated activity level of 71,000 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: Print Machine Manufacturing overhead cost Inventories at year-end 55,000 1,169,000 $ 11,000 100,000 $ 400,000 s 1,500,000 Rav materials Work in process (includes overhead applied of $46,750 Pinished goods (includes overhead applied of $187,000) Cost of goods sold (includes overhead applied of $701,250) 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 Solu? Complete this question by entering your answers in the tabs below. SONOS 26

Explanation / Answer

Req 1. OH rate per MH Estimated Oh 1207000 Divide: Estimated MH 71000 OH rate per MH 17 Overheads Incurred : 1169000 Less: Applied 935000 (55000 Mh @ 17) Under-applied OH 234000 Req 2: Journal entry Accounts title and explanation Debit $ Credit $ Cost of Goods sold Account Dr. 234000       Manufacturing Overheads 234000 Req 3: Inventory Balance % of Total Underapplied Allocated Under-applied OH WIP 100,000 5.00% 234000 11700 Finished Goods 400,000 20.00% 234000 46800 Cost of Goods sold 1,500,000 75.00% 234000 175500 Total 2,000,000 100.00% 234000 234000 Journal entry Accounts title and explanation Debit $ Credit $ Work in process inventory Account Dr. 11700 Finished Goods inventory Account Dr. 46800 Cost of Goods sold Account Dr. 175500       Manufacturing Overheads Account 234000 Req 4: Net income decrease under first mthod 234000 Net income decrease under second method as under: Income increase by WIP 11700 Income Increase by FG 46800 Income decrease by COGS -175500 Net decrease under second method 117000 Net Income increased by 117000

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