The Zaf Radiator Company uses a normal -cost accounting 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
Required:
1. Compute the budgeted manufacturing overhead rate for 2011.
2. Compute the under - or overallocated manufacturing overhead of Zaf Radiator for 2011. Dispose of this amount using the following:
a. Write-off to cost of goods sold
b. Proration based on the ending balances (before proration) in Work-In Process
Control, Finished Goods Control, and Costs 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 costs of goods sold
3. Which method do you prefer in requirement 2? Explain.