Luzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and a

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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 $1,615,000 of total manufacturing overhead
for an estimated activity level of 85,000 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 77,000
Manufacturing overhead cost $ 1,574,000 Inventories at year-end:
Raw materials $ 14,000 Work in process (includes overhead applied
of $73,150) $ 94,000 Finished goods (includes overhead applied of
$277,970) $ 357,200 Cost of goods sold (includes overhead applied
of $1,111,880) $ 1,428,800
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?