Savallas Company is highly automated and uses computers to control manufacturing

Question

Savallas Company is highly automated and uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year

Computer-hours 85,000

Fixed manufacturing overhead cost $ 1,278,000

Variable manufacturing overhead per computer-hour $ 3.40

During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company%u2019s warehouse. The company%u2019s cost records revealed the following actual cost and operating data for the year:

Computer-hours 50,000

Manufacturing overhead cost $ 1,005,000

Inventories at year-end:

Raw materials $ 420,000

Work in process $ 160,000

Finished goods $ 1,030,000

Cost of goods sold $ 2,740,000

Compute the company%u2019s predetermined overhead rate for the year. (Round your answer to 2 decimal places.)

Predetermined overhead rate $ per hour

Compute the underapplied or overapplied overhead for the year. (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount. Input the amount as a positive value.)

overhead cost? $   

Assume the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry. (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.)

General Journal    Debit    Credit

Will this entry increase or decrease net operating income

This entry will decrease net operating income.

This entry will increase net operating income.

Explanation / Answer

The company%u2019s predetermined overhead rate for the year
($1,278,000 / 85,000) + $3.40 = $18.435

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