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 |
|
83,000 |
| Fixed manufacturing overhead cost |
$ |
1,276,000 |
| Variable manufacturing overhead per computer-hour |
$ |
3.80 |
|
|
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 |
$ |
1,231,000 |
| Inventories at year-end: |
|
|
| Raw materials |
$ |
430,000 |
| Work in process |
$ |
110,000 |
| Finished goods |
$ |
1,010,000 |
| Cost of goods sold |
$ |
2,750,000 |
|
1.Compute the company's predetermined overhead rate for the year. (Round your answer to 2 decimal places.)
2. 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.)
3.1 Assume the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry. (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.)
3.2 Will this entry increase or decrease net operating income?