Proration of overhead The ride-on-water company (ROW) produces a line of non-motorized boats. ROW uses a normal costing system and allocates manufacturing overhead using direct manufacturing labor cost. the following data is for 2009:
Budgeted manufacturing overhead cost $100,000
Budgeted direct manufacturing labor cost $200,000
Actual manufacturing overhead cost $106,000
Actual direct manufacturing labor cost $220,000
Inventory balances on dec 31, 2009 were:
Account Ending balance 2009 direct manufacturing labor cost in ending balance Work in process $50,000 $20,000 Finished goods $240,000 $60,000 Cost of goods sold $ 560,000 $140,000
1. Calc the overhead allocation rate
2. Compute the amount of under or over allocated overhead
3. Calc the ending balances in work in process, finished goods and cost of goods sold if under/overallocated overhead is:
a. written off cogs
b. prorate based on ending bal (before proration) in each of 3 accounts
c. prorate based on the overhead allocated in 2009 in the ending balance (before proration) in each of the three accounts
4. which method makes most sense? justify your answer.ing bal in each of 3 accounts