Problem: Proration of overhead. (Z. Iqbal adapted) The Zaf Radiator Company uses a normal-costing with a single manufacturing overhead cost pool and machine-hours as the cost-allocation base.
The following data are for 2004:
|
$48,000,000 |
| Budgeted manufacturing overhead |
Machine-hours |
| Overhead allocation base |
80,000 |
| Budgeted machine-hours |
4,900,000 |
| Manufacturing overhead incurred |
75,000 |
Actual machine-hours:
Machine-hours data and the ending balances (before proration of under-or over-allocated overhead) are as follows:
|
Actual Machine-Hours |
2004 End of Year Balance |
| Cost of Goods Sold |
60,000 |
$8,000,000 |
| Finished Goods |
11,000 |
1,250,000 |
| Work in Process |
4,000 |
750,000 |
1) Compute the budgeted manufacturing overhead rate for 2004.
2) Compute the under-or over-allocated manufacturing overhead of Zaf Radiator in 2004. Dispose of this amount using
a) Write-off Cost of Goods Sold
b) Proration based on ending balances (before proration) in Work in Process, Finished Goods, and Cost of Goods sold
c) Proration based on the allocated overhead amount (before proration) in the ending balances of Work in Process, Finished Goods, and Cost of Goods Sold
3) Which method do you prefer in requirement 2? Explain.