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 $1, 520,000 of total manufacturing overhead for an estimated activity level of 76, 000 machine - hours. During the year, a large quantity of furniture on the market caused Luzadis to cut production and build inventories. The company provided the following data for the year: Machine - hours 64, 000 Manufacturing overhead cost $ 1, 471,000 Inventories at year - end: Raw materials S 14,000 Work in process (includes overhead applied of $64, 000) $ 90,500 Finished goods (includes overhead applied of $204, 800) S 289,600 Cost of goods sold (includes overhead applied of $1, 011, 200) $ 1,429, 900 Required: Compute the underapplied or overapplied overhead. Assume the company closes underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry. Assume the company allocates underapplied or overapplied overhead proportionally to
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 $1, 520,000 of total manufacturing overhead for an estimated activity level of 76, 000 machine - hours. During the year, a large quantity of furniture on the market caused Luzadis to cut production and build inventories. The company provided the following data for the year: Machine - hours 64, 000 Manufacturing overhead cost $ 1, 471,000 Inventories at year - end: Raw materials S 14,000 Work in process (includes overhead applied of $64, 000) $ 90,500 Finished goods (includes overhead applied of $204, 800) S 289,600 Cost of goods sold (includes overhead applied of $1, 011, 200) $ 1,429, 900 Required: Compute the underapplied or overapplied overhead. Assume the company closes underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry. Assume the company allocates underapplied or overapplied overhead proportionally to
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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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 based on machine - hours. The predetermined overhead
rate was based on a cost formula that estimates $1, 520,000 of total manufacturing overhead for an estimated activity
level of 76, 000 machine - hours. During the year, a large quantity of furniture on the market caused Luzadis to cut
production and build inventories. The company provided the following data for the year: Machine - hours 64, 000
Manufacturing overhead cost $ 1, 471,000 Inventories at year - end: Raw materials S 14,000 Work in process (includes
overhead applied of $64, 000) $ 90,500 Finished goods (includes overhead applied of $204, 800) S 289,600 Cost of
goods sold (includes overhead applied of $1, 011, 200) $ 1,429, 900 Required: Compute the underapplied or
overapplied overhead. Assume the company closes underapplied or overapplied overhead to Cost of Goods Sold.
Prepare the appropriate journal entry . Assume the company allocates underapplied or overapplied overhead
proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the appropriate journal entry. 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?
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