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Problem 3-12 (Algo) Predetermined Overhead Rate; Disposing of Underapplied or Overapplied Overhead [LO3-4] Luzadis Company makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products based on machine-hours. The predetermined overhead rate was based on a cost formula that estimates $1,615,000 of total manufacturing overhead for an estimated activity level of 85,000 machine-hours. During the year, a large quantity of furniture on the market caused Luzadis to cut production and build inventories. The company provided the following data for the year: Required: 1. Compute the underapplied or overapplied overhead. 2. Assume the company closes underapplied or overapplied overhead to Cost of Goods Sold. Prepare the appropriate journal entry. 3. Assume the company allocates 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 overapplled overhead is allocated to Work in Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold? Complete this question by entering your answers in the tabs below. Compute the underapplied or overapplied overhead. Journal entry worksheet Record the entry to close the balance in the manufacturing overhead account to the cost of goods sold account. Note: Enter debits before credits. Journal entry worksheet Record the allocation of the underapplied/overapplied overhead to various accounts. Note: Enter debits before credits. Complete this question by entering your answers in the tabs below. How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated to Wo Process, Finished Goods, and Cost of Goods Sold rather than being closed to Cost of Goods Sold? Net operating income will be overhead is allocated rather than closed entirely to cost of goods sold

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