Question

The Zef 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 2017: (Click the icon to view the following data.) Read the requirements Requirement 1. Compute the budgeted manufacturing overhead rate for 2017 Begin by selecting the formula you will use. Then, enter the amounts and calculate the rate. Budgeted manufacturing Overhead rate

Answer 1

Compute the Budgeted manufacturing overhead rate for 2017 as follows: Budgeted manufacturing overhead rate for 2017= e for 2017 - Budgeted Mfg. Overhead Budgeted Machine Hours _$5.850,000 90,000 = $65 per machine hour

Working as follows: Compute the Over/under applied overhead as follows: Actual manufacturing overhead: Applied overhead ($65 x 85,000 Mach. Hrs.): $5.900.000 $5,525,000 Under applied overhead: Actual overhead is more than the Applied overhead Compute the under applied overhead as follows: Under applied overhead = (Actual - Applied) overhead = $5.900,000 - $5,525.000 = $375,000 Write-off to cost of goods sold = under applied overhead charged

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b)

	2017 Ending balances	Proration	Allocation of underapplied overhead
	(A)	[B = A ÷ $11,000,000]	C = $375,000 × B
COGS	$8,800,000	80%	$300,000
Finished goods control	$1,650,000	15%	$56,250
Work-in Process control	$550,000	5%	$18,750
Total	$11,000,000		$375,000

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c)

	Overhead allocated	Proration	Allocation of underapplied overhead
	(A)	[B = A ÷ $5,525,000]	C = $375,000 × B
COGS (68,000 × $65)	$4,420,000	80%	$300,000
Finished goods control (10,000 × $65)	$650,000	11.76%	$44,100
Work-in Process control (7,000 × $65)	$455,000	8.24%	$30,900
Total	$5,525,000		$375,000

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3.

Conclusion:

Method C is most preferred as it uses actual machine hours for allocation.