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 

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?
Powered by