Savallas Company is highly automated and uses computers to control manufacturing operations

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



83,000

Fixed manufacturing overhead cost

$

1,280,000

Variable manufacturing overhead per computer-hour

$

3.50



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

$

1,031,000

Inventories at year-end:





Raw materials

$

430,000

Work in process

$

200,000

Finished goods

$

1,040,000

Cost of goods sold

$

2,780,000



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.)

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 a positive value. Omit the \"$\" sign in your response.)

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.)

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 $37,840 for work in process, $208,120 for finished goods, and $700,040 for cost of goods sold. Prepare the journal entry to show the allocation. (Round your intermediate calculations and percentage values to 2 decimal places and final answers to the nearest dollar amount. Omit the \"$\" sign in your response.)

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 a positive value. Omit the \"$\" sign in your response.)


Click here for the SOLUTION