Luzadis Company makes furniture using the latest automated technology. The compa
ID: 2587323 • 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 87,000 Fixed manufacturing overhead cost $ 1,279,000 Variable manufacturing overhead per computer-hour $ 3.60 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 40,000 Manufacturing overhead cost $ 798,000 Required: 1. Compute the company’s predetermined overhead rate for the year. (Round your answer to 2 decimal places.) 2. Compute the underapplied or overapplied overhead for the year. (Round your intermediate calculations to 2 decimal places.) 3. 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.)
Explanation / Answer
Answer:
1
Compute the company’s predetermined overhead rate for the year.
Predetermined Overhead Rate
= Estimated Manufacturing Overhead cost / Estimated total units in the allocation base
Total Manufacturing Overhead cost
= Fixed Manufacturing Overhead cost + Variable Manufacturing Overhead cost
= 1279000 + 87000*3.6
= $ 1,592,200
Estimated total machine hours = 87,000
Hence, Predetermined Overhead Rate = $$ 1,592,200/ 87,000
= $18.30 per machine hour
__________________________________________________
2
Compute the underapplied or overapplied overhead for the year
Total manufacturing overhead applied to work in process
(40,000*18.30)
732000
Total manufacturing overhead cost actually incurred
798000
Under-applied manufacturing overhead
66000
Under-applied manufacturing overhead
66000
_________________________________________
3
General Journal
Debit
Credit
Cost of goods sold
66000
Manufacturing overhead
66000
1
Compute the company’s predetermined overhead rate for the year.
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