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Luzadis Company makes furniture using the latest automatedtechnology. The company uses a job-order costing system and appliesmanufacturing overhead cost to products on the basis ofmachine-hours. The predetermined overhead rate was based on a costformula that estimates $680,000 of total manufacturing overhead foran estimated activity level of 85,000 machine-hours.

During the year, a large quantity of furniture on the marketresulted in cutting back production and a buildup of furniture inthe company’s warehouse. The company’s cost records revealed thefollowing actual cost and operating data for the year:

Machine-hours		76,000
Manufacturing overhead cost	$	637,000
Inventories at year-end:
Raw materials	$	20,000
Work in process (includes overhead applied of $36,480)	$	115,800
Finished goods (includes overhead applied of $91,200)	$	289,500
Cost of goods sold (includes overhead applied of $480,320)	$	1,524,700

Required:

1. Compute the underapplied or overapplied overhead.

2. Assume that the company closes any underapplied oroverapplied overhead to Cost of Goods Sold. Prepare the appropriatejournal entry. (If no entry is required for atransaction/event, select "No journal entry required" in the firstaccount field.)

3. Assume that the company allocates any underapplied or overappliedoverhead proportionally to Work in Process, Finished Goods,and Cost of Goods Sold. Prepare the appropriate journal entry.(If no entry is required for a transaction/event, select"No journal entry required" in the first accountfield.)

4. How much higher or lower will net operating income be if theunderapplied or overapplied overhead is allocated to Work inProcess, Finished Goods, and Cost of Goods Sold rather than beingclosed to Cost of Goods Sold?