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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 predetermined overhead rate at the beginning of the year: Machine-hours Fixed manufacturing overhead cost 89,000 $1,279,000 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 Manufacturing overhead cost 60,000 $1,132,000 Required 1. Compute the company’s predetermined overhead rate for the year. (Round your answer to 2 decimal places.) Predetermined overhead rate per hour 2. Compute the underapplied or overapplied overhead for the year. (Round your intermediate calculations to 2 decimal places.) 3. Assume the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold Prepare the appropriate entry. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field. Round your intermediate calculations to 2 decimal places.)
Expert Answer
Part 1)
The company’s predetermined overhead rate is calculated below:
Predetermined Overhead Rate = Estimated Fixed Manufacturing Overhead/Estimated Machine Hours + Variable Manufacturing Overhead Rate Per Computer Hour
Using the values provided in the question in the above formula, we get,
Predetermined Overhead Rate = 1,279,000/89,000 + 3.10 = $17.47 per hour
_____
Part 2)
The value of underapplied/overapplied overhead is determined as follows:
Underapplied Overhead = Actual Overhead Cost – Overhead Applied = 1,132,000 – 60,000*17.47 =$83,800
_____
Part 3)
The journal entry is provided as follows:
| Event | General Journal | Debit | Credit |
| 1 | Cost of Goods Sold | $83,800 | |
| Manufacturing Overhead | $83,800 |
