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 $980,000 of total manufacturing overhead for an estimated activity level of 98,000 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: $ 78,000 941,000 $ Machine-hours Manufacturing overhead cost Inventories at year-end: Raw materials Work in process (includes overhead applied of $39,000) Finished goods (includes overhead applied of $117,000) Cost of goods sold (includes overhead applied of $624,000) $ 15,000 $ 97,500 $ 292,500 $ 1,560,000 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Compute the underapplied or overapplied overhead.

Answer 1

Book1 - Excel Sign in o X File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do & Share Σ AutoSum Cut Eg Copy Calibri - 14 Å Til ab Wrap Text General Bad AY O Fill - Paste BIU- A - % Insert Delete Format Merge & Center - .00 Normal Conditional Format as Good Formatting Table Styles Neutral 20 Format Painter Clear Sort & Find & Filter - Select Editing Clipboard Font Alignment Number Cells UPDATES AVAILABLE Updates for Office are ready to be installed, but first we need to close some apps. Update now X G15 Х fie A B с D E F G Н. K L M 1 Solution- 2 3 1) 4. Predetermined overhead rate: 5 Estimated total manufacturing overhead (a) 6 Estimated total machine-hours (b) 7 Predetermined overhead rate (a/b) 980000 98000 10 8 9 10 Actual manufacturing overhead cost 11 Manufacturing overhead applied to work in process during the year(78000 * 10) 12 Underapplied overhead cost 13 941000 780000 161000 14 15 16 17 18 19 20 21 22 Sheet1 Sheet2 Sheet3 Sheet4 + Ready 100% O Type here to search 1 O a I () ENG 01:08 AM 20-09-2020

Book1 - Excel Sign in o X File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do & Share Σ AutoSum Cut Eg Copy Calibri - 14 Å lili ab Wrap Text General Bad AY O H Fill - Paste BIU- A - 0% Merge & Center - Insert Delete Format .00 Normal Conditional Format as Good Formatting Table Styles Neutral 20 Format Painter Clear Sort & Find & Filter - Select Editing Clipboard Font Alignment Number Cells UPDATES AVAILABLE Updates for Office are ready to be installed, but first we need to close some apps. Update now X M14 X fr A B с D E F G I - J к L M N O P 0 1 2 2) 3 4 Event General Journal 5 1 Cost of goods sold 6 To Manufacturing Overhead 7 Debit($) Credit($) 161000 161000 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Sheet1 Sheet2 Sheet3 Sheet4 + Ready 100% O Type here to search 1 O a I () ENG 01:08 AM 20-09-2020

Book1 - Excel Sign in o X File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do & Share Σ AutoSum Cut Es Copy Calibri - 14 Å lili ab Wrap Text General Bad AY O Fill - Paste BIU- A - C.% Merge & Center - Insert Delete Format .00 Normal Conditional Format as Good Formatting Table Styles Neutral 20 Format Painter Clear Sort & Find & Filter - Select Editing Clipboard Font Alignment Number Cells UPDATES AVAILABLE Updates for Office are ready to be installed, but first we need to close some apps. Update now X F7 Х fie А B с D E F G H. I J K 1 M N. 0 Р 1 23) 3 Underapplied overhead would be allocated using the following % 4 Overhead applied during the year in : 5 Work in process 39000 5% 6 Finished goods 117000 15% 7 Cost of goods sold 624000 80% 8 Total 780000 100% 9 10 The entry to record the allocation of the underapplied overhead would be - 11 12 Event General Journal Debit($) Credit($) 13 1 Work in process (161000 * 5% ) 8050 14 Finished goods (161000 * 15% ) 24150 15 Cost of goods sold (161000 * 80%) 128800 16 To Manufacturing Overhead 17 161000 18 19 20 21 22 Sheet1 Sheet2 Sheet3 Sheet4 + Ready 100% O Type here to search 1 O a I () ENG 01:08 AM 20-09-2020

Book1 - Excel Sign in o X File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do & Share Σ AutoSum * Cut Es Copy Calibri - 12 Å lili ab Wrap Text General Normal Bad AY O H Fill - Paste BIU A - % Insert Delete Format Merge & Center - Neutral .00 30 Format Painter Conditional Format as Good Formatting Table Styles Clear Sort & Find & Filter - Select Editing Clipboard Font Alignment Number Cells UPDATES AVAILABLE Updates for Office are ready to be installed, but first we need to close some apps. Update now X N4 Х fr A B с D E F G H I J K M N o Р Q R 1 2 4) 3 4 Comparing the two methods : 5 6 Cost of goods sold if the underapplied overhead is closed to cost of goods sold ($1560000 + $161000) 7 Cost of goods sold if the underapplied overhead is closed to work in process,finished goods and Cost of goods sold ($1560000 + $128800 ) 8 Difference in cost of goods sold 9 1721000 1688800 32200 10 11 Ans : Net operating income will be $32200 greater if the underapplied overhead is allocated rather than closed entirely to cost of goods sold 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Sheet1 Sheet2 Sheet3 Sheet4 Ready 100% 1 Type here to search I a () ENG 01:08 AM 20-09-2020