Problem:
Frankling & Son Printing designed and printed sales brochures, catalogues, and pamphlets. The business was dissolved in early 1763.
Frankling & Son Printing used a normal costing system. It has two direct cost pools, materials and labor and one indirect cost pool, overhead. Overhead was charged to printing jobs on the basis of direct labor cost. The following information was known about the firm for 1762 (reference attachment).
There was no work in process on Jan 1, 1762 and there were two jobs in process on Dec 31, 1762. The first job used £25 of materials so far and £20 of labor. The second job had used £15 worth of material and £32 of labor. Franklin & Son Printing had no finished good inventories because all printing jobs were based on orders that, when completed, were transferred to cost of goods sold.
Please use excel to answer the following questions:
Budgeted material costs £1,000
Budgeted labor costs £2,000
Budgeted overhead costs £1,500
Actual material costs £900
Actual labor costs £1,800
Actual overhead costs £1,250
1. Compute the overhead allocation.
2. Calculate the balance in ending work in process and in cost of goods sold.
3. Calculate the under-or overallocated overhead.
4. Calculate the ending balances in work in process and cost of goods sold if the under- or overallocated overhead amount is:
a) Written off to cost of goods sold
b) Prorated using the ending balance (before proration) in cost of goods sold and work-in-process control accounts.
5. Which of the methods in requirement 4 would you choose? Explain.