Reference no: EM132778127

Luzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products based on machine-hours. The predetermined overhead rate was based on a cost formula that estimates $612,000 of total manufacturing overhead for an estimated activity level of 68,000 machine-hours.

During the year, a large quantity of furniture on the market resulted in cutting back production and buildup of furniture in  the company's warehouse. The company's cot records revealed the following actual cost and operating data for the year.

Machine-hours $50,000.00
Manufacturing overhead cost $570,000.00

Inventories at year-end:

Raw materials $18,000.00
work in process (includes overhead applied of $22,500) $93,000.00
Finished goods (includes overhead applied of $76,500) $317,900.00
Cost of goods sold (includes overhead applied of $351,000) $1,458,600.00

REQUIRED:

Problem 1. Compute the underapplied or overhead overhead.

Problem 2. Assume that the company closes any underapplied or overapplied overhead to the cost of goods sold. Prepare the appropriate journal entry.

Problem 3. Assume that the company allocates any underapplied or overhead proportionally to work in process, finished goods, and
cost of goods sold. Prepare the appropriate journal entry.

Problem 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?