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 following estimates were used in preparing the predetermined overhead rate at the beginning of the year:
Machine-hours 88,000
Fixed manufacturing overhead cost $1,275,000
Variable manufacturing overhead per computer-hour $ 3.40
During the year, a glut 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 60,000
Manufacturing overhead cost $1,149,000
Required:
1. Compute the company's predetermined overhead rate for the year.
2. Compute the underapplied or overapplied overhead for the year.
3. Assume the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold Prepare the appropriate entry.
Record the entry to close the balance in the manufacturing overhead account to the cost of goods sold account.