Question

Training Wheel prints custom training material for corporations. The business was started January​ 1, 2017. The company uses a​ normal-costing system. It has two​ direct-cost pools, materials and​ labor, and one​ indirect-cost pool, overhead. Overhead is charged to printing jobs on the basis of direct labor cost. The following information is available for 2017.

Budgeted direct labor costs $225,000

Budgeted overhead costs $247,500

Costs of actual material used $138,000

Actual direct labor costs $216,000

Actual overhead costs $239,600

There were two jobs in process on December​ 31, 2017​:

Job 11 and Job 12. Costs added to each job as of December 31 are as​ follows:

	Direct materials	Direct labor
Job 11	$4,810	$5,800
Job 12	$5,630	$7,400

Training Wheel has no​ finished-goods inventories because all printing jobs are transferred to cost of goods sold when completed.

1.	Compute the overhead allocation rate.
2.	Calculate the balance in ending work in process and cost of goods sold before any adjustments for​ under- or overallocated overhead.
3.	Calculate​ under- or overallocated overhead.
4.	Calculate the ending balances in work in process and cost of goods sold if the​ under- or overallocated overhead amount is as​ follows:
	a.	Written off to cost of goods sold
	b.	Prorated using the overhead allocated 2017 ​(before proration) in the ending balances of cost of goods sold and​ work-in-process control accounts
5.	Which of the methods in requirement 4 would you​ choose? Explain.

Answer 1

Pac Answers ③ overhead allocation rate: Let, - BoR = Boco BDLC where, BOL - $247,500 BDLE = $225,000 Now, substitute values in eq n BoR $247,500 $225,000 = 1101. .: The 2017 budjeted manufacturing overhead rate = 110% @ The balance in Ending work in process and cost of goods sold before any adjustments for underlev) ovorallocatid overhead,

WIP, -Dm +DL ADC OLEDL BOR WIP - DMA DLHOLXDOR - Where, DM = $4,810 + $5, 630 = $10440 DL = $5,800 + $7,400 = $13200 Now, substitute values in equ .. WIP - 10440 + 13200 13200 X 1101. - 36840 X110.4. = $40524 i. The work in proces inventory on Dec 31, 2014 = 40524 l mal costing sting me a DCLA DEMA BOL. in where, Dem = 138,000 DEL 216,000 BOL= 247,500

Wow, substitute values in an me = 216,000 + 138,000+2u7,500 me = 601500 The cost of goods sold before adjustment cogs, COGS, = mc-wip, = 601500 -- 40524 = 560,976 . The cost of goods sold on Dec 31, 2017 = 560,976.] ☺ uncker () ovciallocated ovcihend:- In the problem AOL = 239, 600 x=BOL AOL - 247,500 - 239,600 27900 sjovey allocation of owerhead costsze = 7900)

u@ The Ending balance or the cost dr goods should @ be Ending labour before adjustment of 560,976-7 560,976 - 7900 = 553076 (ov) 35.3076 Where as the ending balance for the work in process shall remain the same at & nosau. ( proration based on overhead allocated: OHC = 110%. X 13200 14520 . OH C2 = Boc -OHG - 2471500-145 20 = 232980 o's OHL - $14520 and ottiq = $232980 proration using overhead allocated in 2017 as follows

2017 year | Budgeted proportion Account ble End balance overhead / Proportion dr before Cost I Loverhead cost afte propraction 2 cost of goods stuk 2 (2/247500) Gx 7.900) (-u) stock 560,976 | 23 2980 | q4.13% | 7436 1 553540 work in prock control 405a4 114520 5.874. I ugu 40060 Tolal.. 601500 (247,500 100.00% | 7900 593600 Hence, Provation using overlead allocated in 2017 is done, 5 illustrate the method chooson in requirement u as follows: - the proration method on the overhead allocated should be choosen as is more specific and true method than other methools. --> It appropriately allots overhead costs d under allocation or as i allocation to accounts dilected by proportionating the amount of andey allocation or ovey. allocation.

→ In comparison to cost do goods sold, they ☺ method affects all adjusted accounts that are adjusted to show the changes consistently in the balance sheet and income statement. + Also, the percen't allocation based on the budgeted overhead cost is more Exact as compared to the percent allocation based on the account Ending balances, .: The method choosen is proration method,