Reference no: EM132548312

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 following estimates were used in preparing the pre- determined overhead rate at the beginning of the year:

Machine Hours: 75,000

Fixed Manufacturing overhead cost: $795,000

Variable Manufacturing overhead per computer- hour: $1.40

During the year, a glut 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:

Machine Hours: 60,000

Manufacturing Overhead Cost: $850,000

Inventories at year-end:

Raw Materials- $30,000

Work in Process (includes overhead applied of 36,000)- $100,000

Finished goods (includes overhead applied of 180,000)- $500,000

Cost of Goods Sold (includes overhead applied of 504,000)- $1,400,000

Question 1: Compute the company's predetermined overhead rate.

Question 2: Compute the underapplied or overapplied overhead.

Question 3: Assume that the company closes any underapplied or overapplied overhead directlyto COGS. Prepare the appropriate journal entry.

Question 4: Assume the company allocates any underapplied or overapplied to work in process, Finished Goods, and Cost of Goods soldon the basisof the amount of over applied that remains in each account at the end of the year. Prepare the journal entry to show the allocation for the year.

Question 5: How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated rather than closed directly to COGS?