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 2014:
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 2014 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 2014.
2. Compute the under- or over allocated manufacturing overhead of Zaf Radiator in 2014. 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 2014 (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.