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 $900,000 of total manufacturing overhead for an estimated activity level of 75,000 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. Manufacturing overhead cost Inventories at year-end: 60,000 $ 850,000 $ 30,000 $ 100,000 $ 500,000 $1,400,000 Raw materials. Work in process (includes overhead applied of $36,000) Finished goods (includes overhead applied of $180,000) Cost of goods sold (includes overhead applied of $504,000) Required: 1. Compute the underapplied or overapplied overhead. 2. Assume the company closes underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry. 3. Assume the company allocates underapplied or overapplied overhead proportionally Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the appropriate journal entry. 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?
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 $900,000 of total manufacturing overhead for an estimated activity level of 75,000 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. Manufacturing overhead cost Inventories at year-end: 60,000 $ 850,000 $ 30,000 $ 100,000 $ 500,000 $1,400,000 Raw materials. Work in process (includes overhead applied of $36,000) Finished goods (includes overhead applied of $180,000) Cost of goods sold (includes overhead applied of $504,000) Required: 1. Compute the underapplied or overapplied overhead. 2. Assume the company closes underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry. 3. Assume the company allocates underapplied or overapplied overhead proportionally Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the appropriate journal entry. 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text: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 $900,000 of total manufacturing overhead for an estimated activity level of 75,000 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
Manufacturing overhead cost
Inventories at year-end:
60,000
$ 850,000
Raw materials
Work in process (includes overhead applied of $36,000)
Finished goods (includes overhead applied of $180,000)
Cost of goods sold (includes overhead applied of $504,000)
Required:
1. Compute the underapplied or overapplied overhead.
2. Assume the company closes underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal
entry.
3. 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.
$ 30,000
$ 100,000
$ 500,000
$ 1,400,000
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?
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