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-hours85,000
Fixed manufacturing overhead cost$1,275,000
Variable manufacturing overhead per computer-hour$3.00
During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company%u2019s warehouse. The company%u2019s cost records revealed the following actual cost and operating data for the year:
Computer-hours60,000
Manufacturing overhead cost$1,350,000
Inventories at year-end:
Raw materials$400,000
Work in process$160,000
Finished goods$1,040,000
Cost of goods sold$2,800,000
1.
Compute the company%u2019s 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 journal entry.
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 $43,200 for work in process, $280,800 for finished goods, and $756,000 for cost of goods sold. Prepare the journal entry to show the allocation.
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?
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Ответ:
Part 1. Compute the company%u2019s predetermined overhead rate for the year
Predetermined overhead rate = $15 / Computer Hour
Part 2. Compute the underapplied or overapplied overhead for the year.
Underapplied Overheads are: $1,350,000 - $900,000 = $450,000
Part 3. Assume the company closes any underapplied or overapplied overhead directly to cost of goods sold. Prepare the appropriate journal entry.
Cost of goods sold $450,000 (debit)
Overhead Account $450,000 (credit)
Part 4. 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:
Work In Process $18,000 (debit)
Finished Goods $73,008 (debit)
Cost of Goods Sold $315,000 (debit)
Overhead Account $450,000(credit)
Explanation:
Part 1. Compute the company%u2019s predetermined overhead rate for the year
Predetermined overhead rate = Budgeted Overheads / Budgeted Activity
= $1,275,000/ 85,000
= $15 / Computer Hour
Part 2. Compute the underapplied or overapplied overhead for the year.
Applied Overheads = Actual hours × Predetermined overhead rate
= 60,000 × $15
= $900,000
Actual Overheads = given = $1,350,000
Applied Overheads $900,000 < Actual Overheads $1,350,000, thus we have an underapplied situation
Therefore Underapplied Overheads are: $1,350,000 - $900,000 = $450,000
Part 3. Assume the company closes any underapplied or overapplied overhead directly to cost of goods sold. Prepare the appropriate journal entry.
Cost of goods sold $450,000 (debit)
Overhead Account $450,000 (credit)
Part 4. 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:
Allocations:
Totals Weighted Average% Allocation
Work In Process $43,200 4% $18,000
Finished Goods $280,800 26% $73,008
Cost of Goods Sold $756,000 70% $315,000
Total $1,080,000 100% $450,000
Journals:
Work In Process $18,000 (debit)
Finished Goods $73,008 (debit)
Cost of Goods Sold $315,000 (debit)
Overhead Account $450,000(credit)
Ответ:
$49.137 million
Explanation:
The accounting equation gives the relationship between the elements of a balance sheet as
Assets = Liabilities + Equity
Equity is further divided into common stock and retained earnings which is the accumulated net income over the years net of dividends declared and settled.
Equity = Common stock + Retained earnings
Equity = $127.921 million - $74.974 million
= $52.947 million
Retained earnings = $52.947 million - $3.810 million
= $49.137 million