Luzadis Company makes furniture using the latest automated technology The compan
ID: 2519793 • 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 following estimates were used in preparing the predetermined overhead rate at the beginning of the year Machine-hours Fixed manufacturing overhead cost Variable manufacturing overhead per computer-hour 83,000 $1,271,000 320 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 Machine-hours 50,000 S 1,000,000 Manufacturing overhead cost Inventories at year-end Raw materials Work in process (includes overhead applied of 55,530) Finished goods (includes overhead applied of 277,650) S 400,000 S 140,000 S 1,020,000 S 2,750,000 Cost of goods sold (includes overhead applied of 592,320) Required 1. Compute the company's predetermined overhead rate for the year. (Round your answer to 2 decimal places.) Prodatermined overhead rate per hour 2 Compute the underapplied or overapplied overhead for the year. (Round your intermediate calculations to 2 decimal places.)Explanation / Answer
Answer 1. Predetermined Overhead Rate = Total Manuacturing Overhead) / Allocation Base Predetermined Overhead Rate - Fixed MOH = $1,271,000 / 83,000 Mach. Hrs Predetermined Overhead Rate - Fixed MOH = $15.31 per mach. Hr. (Approx.) Total Predetermined Ocerhead Rate = $15.31 (Fixed MOH) + $3.20 (Variable MOH) Total Predetermined Ocerhead Rate = $18.51 Answer 2. Applied Overhead = 50,000 Mach. Hrs X $18.51 Applied Overhead = $925,500 Actual Overhead 1,000,000.00 Applied Overhead 925,500.00 Underapplied Overhead 74,500.00 Answer 3. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Cost of Goods Sold 74,500.00 Manufacturing Overhead 74,500.00 (record the underapplied overhead) Answer 4. Overhead Applied Overhead Applied - % Underapplied Overhead Applied work in Process 55,530.00 6.00% 4,470.00 Finished Goods 277,650.00 30.00% 22,350.00 Cost of Goods Sold 592,320.00 64.00% 47,680.00 Total Overhead 925,500.00 74,500.00 Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Work in Process 4,470 Finished Goods 22,350 Cost of Goods Sold 47,680 Manufacturing Overhead 74,500 (record the underapplied overhead) Answer 5. Cost of Goods Sold Underapplied Overhead is closed Directly to COGS - $2,750,000 + $74,500 2,824,500.00 Cost of Goods Sold Underapplied Overhead is allocated among accounts - $2,750,000 + $47680 2,797,680.00 Difference in Cost of Goods Sold 26,820.00 Net Operating Income will be $46,200 more, if underapplied overhead is allocated between WIP, finished goods and cost o goods sold instead of cost of goods sold only.
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