Luzadis Company makes furniture using the latest automated technology. The compa
ID: 2515654 • 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 $980,000 of total manufacturing overhead for an estimated activity level of 98,000 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:
Required:
1. Compute the underapplied or overapplied overhead. Underapplied Overhead cost: = $161,000
2. Assume that the company closes any underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry.
Debit Cost of Goods Sold $161,000, Credit Manufacturing Overhead $161,000
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.
Debit, Work in Process $8,050, Finished Goods $24,150, Costs of Goods Sold $128,800, Credit Manufcturing overhead.
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?
Ner operating income will be $__________ Greater if the underapplied over head
Machine-hours 78,000 Manufacturing overhead cost $ 941,000 Inventories at year-end: Raw materials $ 15,000 Work in process (includes overhead applied of $39,000) $ 97,500 Finished goods (includes overhead applied of $117,000) $ 292,500 Cost of goods sold (includes overhead applied of $624,000) $ 1,560,000Explanation / Answer
Solution 1:
Manufacturing overhead incurred = $941,000
Overhead applied = $39,000 + $117,000 + $624,000 = $780,000
Underapplied overhead = $941,000 - $780,000 = $161,000
Solution 2:
Solution 3:
Solution 4:
Underapplied overhead allocated to WIP and finished goods inventory = $8,050 + $24,150 = $32,200
Therefore 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, Ner operating income will be $32,200 greater.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.