Scanlon Company Has a Job-Order Costing System and Applies Manufacturing

Essay

Scanlon Company has 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 for the most recent year:
Machine hours: 95,000
Manufacturing overhead cost: $1,710,000
During the most recent year,a severe recession in the company's industry caused the curtailment of production and a buildup of inventory in the company's warehouses.The company's cost records revealed the following actual cost and operating data for the year:
Machine hours: 75,000
Manufacturing overhead cost: $1,687,500
Amount of applied overhead in inventories at year-end:
Work in process: $337,500
Finished goods: 253,125
Amount of applied overhead in cost of goods sold for the year: 759,375
Required:
(a.)Compute the company's predetermined overhead rate for the year and the amount of under- or overapplied overhead for the year.
(b.)Determine the difference between net income for the year if the under- or overapplied overhead is allocated to the appropriate accounts rather than closed out directly to Cost of Goods Sold.