Question

ABC Manufacturing Inc. ends the month with two jobs still in progress. Job 5 has​ $10,000 of​ materials, $2,000 of direct labor and​ $8,000 of manufacturing overhead allocated. Job 6 has​ $30,000 of​ materials, $2,000 of direct labor and​ $12,000 of manufacturing overhead allocated. The cost of goods sold for the month was​ $40,000 and there was no finished goods in stock as the month ended. If the manufacturing overhead was underallocated by​ $10,000, which of the following choices would be the correct way to prorate it based on ending balances before​ proration? (Round any allocation percentages to one decimal​ place, X.X%.)

A. ​$6,150 of the underallocated manufacturing overhead should be split between Job 6 and cost of goods sold

B. ​$6,150 of the underallocated manufacturing overhead should be allocated to​ work-in-process

C. The entire​ $10,000 of underallocated manufacturing overhead should be allocated to cost of goods sold

D. The entire​ $10,000 of underallocated manufacturing overhead should be added to operating expenses for the month

Answer 1

Solution:

Balance of work in process before proration = Cost of job 5 + Cost of job 6

= ($10,000 + $2,000 + $8,000) + ($30,000 + $2,000 + $12,000) = $64,000

Cost of goods sold = $40,000

Underallocated overhead to be allocated to WIP = $10,000 * $64,000 / $104,000 = $6,150

Hence option B is correct,