Saved Help Save& ExitSubm Check my work Luzadis Company makes furniture using th

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Saved Help Save& ExitSubm Check my work 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 $1,040,000 of total manufacturing overhead for an estimated activity level of 80,000 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: Machine-hours Manufacturing overhead cost Inventories at year-end: 71,000 s 990,000 Raw materials Work in process (includes overhead applied of $73,840) Pinished goods (includes overhead applied of $147,680) $11,000 $156, 000 S312,000 s 1,482,000 Cost of goóds sold (includes overhead applied of $701,480) Required 1. Compute the underapplied or overapplied overhead. 2. Assume that the company closes any underapplied or overapplied overh head to Cost of Goods Sold. Prepare the appropriate journal entry 3. Assume that the company allocates any underapplied or overapplied overhead proportionally to Work in Process, Finis and Cost of Goods Sold. Prepare the appropriate journal entry 4. How much higher or lower Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold? will net operating income be if the underapplied or overapplied overhead is allocated to Work in Process, Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4

Explanation / Answer

1) Predetermine overhead rate = 1040000/80000 = 13 per machine hour

Applied overhead = 71000*13 = 923000

Actual overhead = 990000

Under applied overhead = 923000-990000 = 67000

2) Journal entry :

3) Journal entry :

4) Net operating income will be higher by $16080 if underapplied overhead allocated rather than closed entirely to cost of goods sold.

Date account and explanation debit credit Cost of goods sold 67000 Manufacturing overhead 67000 (To close under applied overhead)

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