Response to the following problem:
Proration of overhead with two indirect cost pools. New Rise, Inc., produces porcelain figurines. The production is semi-automated where the figurine is molded almost entirely by operator-less machines and then individually hand-painted. The overhead in the molding department is allocated based on machine-hours and the overhead in the painting department is allocated based on direct manufacturing labor-hours. New Rise, Inc. ' uses a normal-coating system and reported actual overhead for the month of May of $17,248 and $31,485 for the molding and painting departments, respectively. The company reported the following information related to its inventory accounts and cost of goods sold for the month of May:
Work in Process Finished Goods Cost of Goods Sold
Balance before proration $27,720 $15,523.20 $115,156.80
Molding Dept. Overhead allocation $4,602 $957.00 $12,489.00
Painting dept. Overhead allocation $2,306 $1,897.00 $24,982.00
1. Calculate the over ' or ' under-allocated overhead for each of the Molding and Painting Departments in May.
2. Calculate the ending balances in work in process, finished goods, and Cost of Goods sold (COGS) if the under or over allocated overhead amounts in each department are as follows:
a) Written off to cost of goods sold
b) Prorated based on the ending balance (before proration) in each of the three accounts
c) Prorated based on the overhead allocated in May (before proration) in the ending balances in each of the three accounts.
3. Which method would you choose? Explain.