Luzadis Company manufactures furniture using the latest automated technology.The company uses a job-costing system and applies manufacturing
Question:
Luzadis Company manufactures furniture using the latest automated technology. The company uses a job-costing system and applies manufacturing overhead costs to products on a machine-hour basis. The default overhead rate was based on a cost formula that estimates $1,368,000 of total manufacturing overhead for an estimated activity level of 72,000 machine-hours.
During the year, the large amount of furniture on the market led to a reduction in production and a backlog of furniture in the company's warehouse. The company's cost records revealed the following actual costs and operating data for the year:
machine hours | 61,000 | |
overall manufacturing cost | ps | 1,324,000 |
Inventories at the end of the year: | ||
Raw Materials | ps | 16,000 |
Work in progress (includes applied overhead of $115,900) | ps | 188,000 |
Finished goods (includes applied overhead of $208,620) | ps | 338,400 |
Cost of goods sold (includes applied overhead of $834,480) | ps | 1,353,600 |
Required:
1. Calculate the underapplied or overapplied overhead.
2. Assume that the company writes off any overhead costs underapplied or overapplied to the cost of goods sold. Prepare the corresponding journal entry.
3. Assume that the company allocates any underapplied or overapplied overhead costs proportionally to work in process, finished goods, and cost of goods sold. Prepare the corresponding journal entry.
4. How much higher or lower will net operating income be if underapplied or overapplied overhead costs are allocated to work in process, finished goods, and cost of goods sold instead of being capped at cost of goods sold?
Managerial Accounting
ISBN: 978-0077522940
15th edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer