how would someone find the variable manufacturing overhead p

how would someone find the variable manufacturing overhead per computer-hour?

Here is the actual question.

Luzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The predetermined 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, a large quantity of furniture on the market resulted in cutting back production and a buildup of furniture in the company’s warehouse. The company’s cost records revealed the following actual cost and operating data for the year:

Machine-hours

61,000

Manufacturing overhead cost

$

1,324,000

Inventories at year-end:

Raw materials

$

16,000

Work in process (includes overhead applied of $115,900)

$

188,000

Finished goods (includes overhead applied of $208,620)

$

338,400

Cost of goods sold (includes overhead applied of $834,480)

$

1,353,600

Required:

1. Compute the underapplied or overapplied overhead.

2. Assume that the company closes any underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry.

3. Assume that the company allocates any underapplied or overapplied overhead proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the appropriate journal entry.

4. How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated to Work in Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold?

Machine-hours		61,000
Manufacturing overhead cost	$	1,324,000
Inventories at year-end:
Raw materials	$	16,000
Work in process (includes overhead applied of $115,900)	$	188,000
Finished goods (includes overhead applied of $208,620)	$	338,400
Cost of goods sold (includes overhead applied of $834,480)	$	1,353,600

Luzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The predetermined 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, a large quantity of furniture on the market resulted in cutting back production and a buildup of furniture in the company\'s warehouse. The company\'s cost records revealed the following actual cost and operating data for the year: Machine-hours Manufacturing overhead cost Inventories at year-end: 61,000 $1, 324,000 Raw materials Work in process (includes overhead applied of $115, 900) Finished goods (includes overhead applied of $28, 620) $ 16, 000 $ 188, $ 338,4 $ 1,353, 6 Cost of goods sold (includes overhead applied of $834, 480) Required: 1. Compute the underapplied or overapplied overhead 2. Assume that the company closes any underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry 3. Assume that the company allocates any underapplied or overapplied overhead proportionally to Work in Process, Finished Goods, and Cost of Goods Sold. Prepare the appropriate journal entry. 4. How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated to Work in Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold?

Solution

Answer 1. Predetermined Overhead Rate = $1,368,000 (Total Manuacturing Overhead) / 72,000 Mach Hrs Predetermined Overhead Rate = $19 per Machine Hours Applied Overhead = 61,000 Mach. Hrs X $19 Applied Overhead = $1,159,000 Actual Overhead    1,324,000.00 Applied Overhead    1,159,000.00 Underapplied Overhead        165,000.00 Answer 2. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Cost of Goods Sold        165,000.00 Manufacturing Overhead           165,000.00 (record the underapplied overhead) Answer 3. Overhead Applied Overhead Applied - % Underapplied Overhead Applied work in Process        115,900.00 10.00%                 16,500.00 Finished Goods        208,620.00 18.00%                 29,700.00 Cost of Goods Sold        834,480.00 72.00%              118,800.00 Total Overhead    1,159,000.00              165,000.00 Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Work in Process          16,500.00 Finished Goods          29,700.00 Cost of Goods Sold        118,800.00 Manufacturing Overhead           165,000.00 (record the underapplied overhead) Answer 4. Cost of Goods Sold Underapplied Overhead is closed Directly to COGS - $1,353,600 + $165,000    1,518,600.00 Cost of Goods Sold Underapplied Overhead is allocated among accounts - $1,353,600 + $118,800    1,472,400.00 Difference in Cost of Goods Sold          46,200.00 Net Operating Income will be $46,200 more, if underapplied overhead is allocated between WIP, finished goods and cost o goods sold instead of cost of goods sold only.