Luzadis Company makes furniture using the latest automated technology. The compa
ID: 2593096 • 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 predetermined overhead rate was based on a cost formula that estimates $520,000 of total manufacturing overhead for an estimated activity level of 65,000 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:
Required:
1. Compute the underapplied or overapplied overhead.
2. Assume that the company closes any underapplied or overapplied overhead 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, Finished Goods, and Cost of Goods Sold. Prepare the appropriate journal entry.
4. How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated to Work in Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold?
Compute the underapplied or overapplied overhead.
Assume that the company closes any underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Assume that the company allocates any underapplied or overapplied overhead proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the appropriate journal entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated to Work in Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold?
Machine-hours 54,000 Manufacturing overhead cost $ 488,000 Inventories at year-end: Raw materials $ 19,000 Work in process (includes overhead applied of $25,920) $ 117,000 Finished goods (includes overhead applied of $73,440) $ 331,500 Cost of goods sold (includes overhead applied of $332,640) $ 1,501,500Explanation / Answer
percentage % amount Allocated work in process 117000 6.00% 56,000 3360 finished goods 331500 17.00% 56,000 9520 cost of goods sold 1501500 77.00% 56,000 43120 1950000 56000 journal entry Debit Credit work in process 3360 finished goods 9520 cost of goods sold 43120 manufacturing overhead 56,000 net operating income will be greater by 12880 (56000-43120)
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