In the past year, Oak Crafters Cabinets had total revenue of $2,500,000, cost of goods sold of $1,000,000 (before adjustment for over- or under applied overhead), administrative expenses of $600,000, and selling expenses of $400,000. During the year, overhead was applied using a predetermined rate of 75 percent of direct labor cost. Actual direct labor was $700,000. Actual overhead was $450,000. The ending balances in the inventory accounts (prior to adjustment for over applied overhead) are:

Raw Materials Inventory .................... $32,000

Work in Process Inventory .................... 80,000

Finished Goods Inventory .................... 48,000

Required

a. Calculate net income treating the amount of over-applied overhead as immaterial and assigning it to Cost of Goods Sold.

b. Calculate net income treating the amount of over-applied overhead as material and apportioning it to the appropriate inventory accounts and Cost of Goods Sold. Round proportions to 3 decimal places. Round adjustments to the nearest whole dollar.

c. Discuss the impact of the alternative treatments?