Luzadis Company makes furniture using the latest automated technology. The compa

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 $1,279,000 3.80 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 Manufacturing overhead cost Inventories at year-end 50,000 $ 1018,000 Raw materials Work in process (includes overhead applied of 76,840) Finished goods (includes overhead applied of 249,730) $ 420,000 $ 160,000 $ 1,020,000 2,780,000 Cost of goods sold (includes overhead applied of 633,930) Required: 1 Compute the company's predetermined overthead ate for he year (Round your answr to 2 decimal places.) Predetermined overhead rate per hour

Explanation / Answer

Solution a:

Predetermined overhead rate = Estimated fixed overhead / Estimated machine hours + Varaible overhead rate per machine hours

= $1,279,000 / 83000 + $3.80 = $19.21 per hour

Solution b:

Manufacturing overhead incurred = $1,018,000

Manufacturing overhead applied = $76,840 + $249,730 + $633,930 = $960,500

Underapplied overhead = $1,018,000 - $960,500 = $57,500

Solution c:

Solution 5:

Under applied overhead charged to COGS if allocated propotionately = $37,950

Underapplied overhead charged to COGS if closed directly to COGS = $57,500

Net Increase in income due to proportionate allocation = $57,500 - $37,950 = $19,550

Net operating income will be $19,550 greater if the underapplied overhead is allocated rather than closed directly to cost of goods sold.

Journal Entry - Luzadis Company Event Particulars Debit Credit 1 Cost of goods sold Dr $57,500.00          To Manufacturing overhead $57,500.00 (being underapplied overhead charged to COGS)

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.