Problem 3-21 Predetermined Overhead Rate; Disposition of Underapplied or Overapplied Overhead [LO1, LO7] Savallas Company is highly automated and uses computers to control manufacturing operations. T

Problem 3-21 Predetermined Overhead Rate; Disposition of Underapplied or Overapplied Overhead [LO1, LO7]

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 84,000

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 50,000

Manufacturing overhead cost \$ 996,000

Inventories at year-end:

Raw materials \$ 410,000

Work in process \$ 140,000

Finished goods \$ 1,010,000

Cost of goods sold \$ 2,770,000

________________________________________

Required:

1. Compute the company’s predetermined overhead rate for the year. (Round your answer to 2 decimal places. Omit the “\$” sign in your response.)

Predetermined overhead rate \$ ??? per hour

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 positive value. Omit the “\$” sign in your response.)

Under/over applied?/ overhead cost \$ ???

3. Assume the company closes any underapplied or overapplied overhead directly to cost of goods sold. Prepare the appropriate entry. (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount. Omit the “\$” sign in your response.)

General Journal Debit Credit

Salaries expense

Finished Goods

Cost of goods sold

Work in process choose only one for Debit and one for credit

Depreciation expense

Mfg Overhead

Raw Materials

Accounts payable

?

?

________________________________________

4. Assume that the company allocates any underapplied or overapplied overhead to work in process, finished goods, and cost of goods sold on the basis of the amount of overhead applied during the year that remains in each account at the end of the year. These amounts are \$55,830 for work in process, \$279,150 for finished goods, and \$595,520 for cost of goods sold. Prepare the journal entry to show the allocation. (Round your intermediate calculations and percentage values to 2 decimal places and final answers to the nearest dollar amount. Omit the “\$” sign in your response.)

General Journal Debit Credit

Salaries expense

Finished Goods

Cost of goods sold

Work in process choose three for Debit and one for credit

Depreciation expense

Mfg Overhead

Raw Materials

Accounts payable ???

?

________________________________________

5. How much higher or lower will net operating income be for the year if the underapplied or overapplied overhead is allocated rather than closed directly to cost of goods sold? (Round your intermediate calculations and percentage values to 2 decimal places and final answers to the nearest dollar amount. Input the amount as positive value. Omit the “\$” sign in your response.)

Net operating income will be ??\$ if the overhead is allocated among work in process, finished goods, and cost of goods sold rather than closed directly to cost of goods sold.