Question

Adriana Company is highly automated and uses computers to control manufacturing operations. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of computer-hours. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:

Computer-hours 82,000
Fixed manufacturing overhead cost $ 1,278,000
Variable manufacturing overhead per computer-hour $ 3.40
During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company�s warehouse. The company�s cost records revealed the following actual cost and operating data for the year:


Computer-hours 60,000
Manufacturing overhead cost $ 1,208,000
Inventories at year-end:
Raw materials $ 420,000
Work in process $ 120,000
Finished goods $ 1,030,000
Cost of goods sold $ 2,770,000
Required:
1.
Compute the company�s predetermined overhead rate for the year. (Round your answer to two decimal places.)

Predetermined overhead rate $ per hour
2.
Compute the underapplied or overapplied overhead for the year. (Input the amount as a positive value.Round your predetermined overhead rate calculation to two decimal places. Round your final answer to the nearest dollar amount.)

(Click to select)OverappliedUnderapplied overhead cost $
3.1
Assume the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry. (Round your predetermined overhead rate calculation to two decimal places. Round your final answer to the nearest dollar amount.)

General Journal Debit Credit
(Click to select)Salaries expenseDepreciation expenseManufacturing overheadFinished goodsCost of goods soldWork in processRaw materialsAccounts payable
(Click to select)Depreciation expenseWork in processSalaries expenseFinished goodsAccounts payableRaw materialsManufacturing overheadCost of goods sold
3.2
Will this entry increase or decrease net operating income?

This entry will increase net operating income.
This entry will decrease net operating income.

Answer 1

rate: 18.99

underapplied for 68,600

cost of goods sold 68,600 debit

factory overhead 68,600 credit

This decrease the net operating income as we have more cost.

Step-by-step explanation:

`(Cost\: Of \:Manufacturing \:Overhead)/(Cost \:Driver)= Overhead \:Rate`

the predetermined overhead rate will be calcualte by dividing the expected cost over the cost driver. In this case, computer-hours

1,278,000 / 82,000 = 15.585 fixed

we will add the variable overhead of 3.4 for a total of: 18,985 = 18.99

actual overhead: 1,208,000

applied ovehread 60,000 x 18.99 = 1.139.400‬

as the appleid is lower than actual, the overehad was underapplied we need to recognize more cost of goods sold.

underapplied for: 1,208,000 - 1,139,400 = 68,600