Managerial Accounting: P2-21B Adriana Company is highly automated and uses computers
Managerial Accounting Problem 2-21B Predetermined Overhead Rate; Disposition of Underapplied or Overapplied Overhead Adriana 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 88,000 Fixed manufacturing overhead cost 1,372,800 Variable manufacturing overhead per computer-hour 3.20
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 65,000 Manufacturing overhead cost 1,320,000 Inventories at year-end: Raw materials 465,000 Work in process 210,000 Finished goods 1,075,000 Cost of goods sold 2,815,000
Required: 1. Compute the company’s predetermined overhead rate for the year.(Round your answer to two decimal places.) 2. Compute the underapplied or overapplied overhead for the year. (Round your final answer to the nearest dollar amount.) 3. Assume the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Will this entry increase or decrease net operating income?