A Company’s Predetermined Overhead Rate

Scanlon Company has a job-order costing system and applies to manufacture 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………………………….95,000Manufacturing overhead cost ……..$1,710,000During the most recent year, a severe recession in the company’s industry caused 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…………………………………………………………………..75,000Manufacturing overhead cost ………………………………………………$1,687,500Amount of applied overhead in inventories at year-end:Work in process………………………………………………………………$337,500Finished goods………………………………………………………………..$253,125Amount of applied overhead in cost of goods sold ………………$759,375Required:a. Compute the company’s predetermined overhead rate for the year and the amount of underapplied or overapplied overhead for theyear.b. Determine the difference between net operating income for the year if the underapplied or overapplied overhead is allocated to the appropriate accounts rather than closed directly to Cost of GoodsSold.(with no plagarism and clear description how it is derived)

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