Problem:
Proration of overhead. (Z. Iqbal, adapted) The Zaf Radiator Company uses a normal-costing system with a single manufacturing overhead cost pool and machine-hours as the cost-allocation base. The following data are for 2011:
|
Budgeted manufacturing overhead costs
|
$4,800,000
|
|
Overhead allocation base
|
Machine-hours
|
|
Budgeted machine-hours
|
80,000
|
|
Manufacturing overhead costs incurred
|
$4,900,000
|
|
Actual machine-hours
|
75,000
|
Machine-hours data and the ending balances (before proration of under- or overallocated overhead) are as follows:
|
Actual Machine-Hours
|
2011 End-of-Year Balance
|
|
Cost of Goods Sold
|
60,000
|
$8,000,000
|
|
Finished Goods Control
|
11,000
|
1,250,000
|
|
Work-in-Process Control
|
4,000
|
750,000
|
1. Compute the budgeted manufacturing overhead rate for 2011.
2. Compute the under- or overallocated manufacturing overhead of Zaf Radiator in 2011. Dispose of this amount using the following:
a. Write-off to Cost of Goods Sold
b. Proration based on ending balances (before proration) in Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold
c. Proration based on the overhead allocated in 2011 (before proration) in the ending balances of Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold
3. Which method do you prefer in requirement 2? Explain.