Luzadis Company makes furniture using the latest automated technology. The compa
ID: 2566831 • 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:
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:
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.)
4.)
Assume that the company allocates any underapplied or overapplied overhead to Work in Process, Finished Goods, and Cost of Goods Sold on the basis of the amount of overhead applied during the year that remains in each account at the end of the year. These amounts are $55,650 for work in process, $204,050 for finished goods, and $667,800 for cost of goods sold. Prepare the journal entry to show the allocation for the year. (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.)
5.)
How much higher or lower will net operating income be for the year if the underapplied or overapplied overhead is allocated rather than closed directly to Cost of Goods Sold? (Round your intermediate calculations to 2 decimal places.)
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:
Explanation / Answer
Solution A Overheade cost budgeted 1,274,000 Machine hours 83,000 Overhead recovery rate =1274000/83000 15.35 Variable overhead rate 3.20 Predetermined overhead recovery rate 18.55 Solution B Actual Machine hours 50,000 Overheads applied @ 18.55 927,500 Actual Cost 992,000 Underapplied overhead 64,500 Solution C Cost of goods Sold Dr 64,500 To Overheads 64,500 (Being underapplied overhead charged to Cost of Goods sold) Solution D WIP Dr 3,870 Finished Stock Dr 14,190 Cost of goods sold Dr 46,440 To Overheads 64,500 (Being underapplied overheads charged) Ovherheads applied Amount Weight Underapplied in same ratio WIP 55,650 6.00% 3,870 Finished Stock 204,050 22.00% 14,190 Cost of goods sold 667,800 72.00% 46,440 Total 927,500 100.00% 64,500 Solution D Difference in cost of goods sold in w different allocation bases Charged to COGS 100% 64,500 Charged to all factors of inventory 46,440 Operating income differential 18,060 So operating income will increase by 18,060
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