Savallas 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 85,000
- 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%u2019s warehouse. The company%u2019s cost records revealed the following actual cost and operating data for the year:
- Computer-hours 50,000
- Manufacturing overhead cost $ 1,005,000
- Inventories at year-end:
- Raw materials $ 420,000
- Work in process $ 160,000
- Finished goods $ 1,030,000
- Cost of goods sold $ 2,740,000
Compute the company%u2019s predetermined overhead rate for the year. (Round your answer to 2 decimal places.)
Predetermined overhead rate $ per hour
Compute the underapplied or overapplied overhead for the year. (Round your intermediate calculations to 2 decimal places and final answer to the nearest dollar amount. Input the amount as a positive value.)
Assume the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry.
General Journal Debit Credit
- Will this entry increase or decrease net operating income
- This entry will decrease net operating income.
- This entry will increase net operating income.