Compute the underapplied or overapplied overhead for the

Reference no: EM13576872

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		83,000
Fixed manufacturing overhead cost	$	1,276,000
Variable manufacturing overhead per computer-hour	$	3.80

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


Computer-hours		60,000
Manufacturing overhead cost	$	1,231,000
Inventories at year-end:
Raw materials	$	430,000
Work in process	$	110,000
Finished goods	$	1,010,000
Cost of goods sold	$	2,750,000

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 and final answer to the nearest dollar amount. Input the amount as a positive value.)

3.1 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.)

3.2 Will this entry increase or decrease net operating income?

Reference no: EM13576872

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