Reference no: EM13576903

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 85,000
• Fixed manufacturing overhead cost $ 1,278,000
• Variable manufacturing overhead per computer-hour $ 3.40

During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company%u2019s warehouse. The company%u2019s cost records revealed the following actual cost and operating data for the year:

• Computer-hours 50,000
• Manufacturing overhead cost $ 1,005,000
• Inventories at year-end:
• Raw materials $ 420,000
• Work in process $ 160,000
• Finished goods $ 1,030,000
• Cost of goods sold $ 2,740,000

Compute the company%u2019s predetermined overhead rate for the year. (Round your answer to 2 decimal places.)

Predetermined overhead rate $ per hour

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.)

Assume the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry.

General Journal Debit Credit

• Will this entry increase or decrease net operating income
• This entry will decrease net operating income.
• This entry will increase net operating income.