Problem 3-22 Predetermined Overhead Rate; Disposition of Underapplied or Overapp
ID: 2498055 • Letter: P
Question
Problem 3-22 Predetermined Overhead Rate; Disposition of Underapplied or Overapplied Overhead [LO3-1, LO3-7]
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:
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:
Compute the company’s predetermined overhead rate for the year. (Round your answer to 2 decimal places.)
Compute the underapplied or overapplied overhead for the year. (Round your intermediate calculations to 2 decimal places.)
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.)
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 $56,070 for work in process, $242,970 for finished goods, and $635,460 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.)
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.)
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:
Explanation / Answer
Answer:1 Predetermined overhead cost=Fixed Manufacturing overhead cost/MAchine hours
=$1277000/83,000 hours
=$15.39 per machine hour
Total predetermined overhead cost=$15.39+$3.30=$18.69
Answer:2 Calculation of the underapplied or overapplied overhead for the year:
Applied overhead=50000 hours*$18.69=$934500
Actual overhead=$1,009,000
Underapplied overhead=74500
Answer:3 Cost of goods sold A/C Dr.$74500
To manufacturing overhead A/C $74500
Answer:4
Ratio: $56,070+ $242,970 + $635,460 = 934500;
WiP=56070/934500= 6%,
FG=242970/934500= 26%,
COGS=635460/934500= 68%,
Total= 100%
Allocation of Underapplied: WiP 4470, FG 19370, COGS 50660, Total 74,500
DR WiP 4470
DR FG 19370
DR COGS 50660
CR Manufacturing Overhead 74500
Answer:5 The net operating income will be $23840 (74500-50660) greater if the underapplied.
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