Question

how would someone find the variable manufacturing overhead per computer-hour?

Here is the actual question.

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 $1,368,000 of total manufacturing overhead for an estimated activity level of 72,000 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		61,000
Manufacturing overhead cost	$	1,324,000
Inventories at year-end:
Raw materials	$	16,000
Work in process (includes overhead applied of $115,900)	$	188,000
Finished goods (includes overhead applied of $208,620)	$	338,400
Cost of goods sold (includes overhead applied of $834,480)	$	1,353,600

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?

Answer 1

Answer 1.
Predetermined Overhead Rate = $1,368,000 (Total Manuacturing Overhead) / 72,000 Mach Hrs
Predetermined Overhead Rate = $19 per Machine Hours
Applied Overhead = 61,000 Mach. Hrs X $19
Applied Overhead = $1,159,000
Actual Overhead		1,324,000.00
Applied Overhead		1,159,000.00
Underapplied Overhead		165,000.00
Answer 2.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Cost of Goods Sold	165,000.00
	Manufacturing Overhead		165,000.00
	(record the underapplied overhead)
Answer 3.
		Overhead Applied	Overhead Applied - %	Underapplied Overhead Applied
	work in Process	115,900.00	10.00%	16,500.00
	Finished Goods	208,620.00	18.00%	29,700.00
	Cost of Goods Sold	834,480.00	72.00%	118,800.00
	Total Overhead	1,159,000.00		165,000.00
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
1	Work in Process	16,500.00
	Finished Goods	29,700.00
	Cost of Goods Sold	118,800.00
	Manufacturing Overhead		165,000.00
	(record the underapplied overhead)
Answer 4.
Cost of Goods Sold Underapplied Overhead is closed Directly to COGS - $1,353,600 + $165,000		1,518,600.00
Cost of Goods Sold Underapplied Overhead is allocated among accounts - $1,353,600 + $118,800		1,472,400.00
Difference in Cost of Goods Sold		46,200.00
Net Operating Income will be $46,200 more, if underapplied overhead is allocated between WIP, finished goods and cost o goods sold instead of cost of goods sold only.