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 following estimates were used in preparing the predetermined overhead rate at the beginning of the year. Machine-hours Fixed manufacturing overhead cost Variable manufacturing overhead per computer-hour 81,000 $1,275,000 $ 3.30 During the year, a glut 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 50,000 $1,019,000 Required: 1. Compute the company's predetermined overhead rate for the year. (Round your answer to 2 decimal places.) Predetermined overhead rate per hour

Answer 1

1. Predetermined Overhead Rate = $19 Per Machine Hour

Explanation;  

Predetermined Overhead Rate = Estimated Manufacturing Overhead Cost / Estimated Total Units in the Allocation base.

Total Manufacturing Overhead Cost = Fixed Manufacturing Overhead Cost + Variable Manufacturing Overhead Cost.

= 1,275,000 +81,000 × $3.30

= $1,275,000 + $267,300 = $1,542,300

So. Predetermined Overhead Rate =$1,542,300 / $81,000 = $19 Per Machine Hour .

2. Underapplied Manufacturering Overhead = $69,000

Explanation;  

Total Manufacturing Overhead Applied to Work in Process = 50,000 × $19 = $950,000 Total Manufacturing Cost Actually incurred = $1,019,000

Underapplied Manufacturering Overhead = $950,000 - $1,019,000 = $69,000

3. Journal Entry

No	Account Title and Explanation	Debit	Credit
1	Cost of Goods Sold	$69,000
	Manufacturing Overhead		$69,000