Question

Crompton and Co., uses a normal job-order costing system. It set up a single cost-pool, single overhead allocation rate system using total budgeted manufacturing overhead for 2019 as the numerator and expected consumption of machine hours for 2019 as the denominator. There was no beginning WIP or FG inventory as of January 1, 2019. There was also no WIP as of December 31, 2019. The various jobs that Jindal worked on during 2019 consumed a total of 100,000 machine hours. Of these jobs, only Job 800 that had consumed 10,000 machine hours in 2019 still remained in the finished goods warehouse. All other jobs had been sold and delivered to the customers. Crompton disposes off under or over-allocated overhead by prorating on the basis of allocated overhead in ending balances of WIP, FG and COGS. For 2019 the balances in the MOH control and MOH allocated accounts were $200,000 and $220,000, respectively. Calculate the amount of under or over-allocated overhead that will be charged to COGS at the end of 2019? Clearly specify whether this amount will increase or decrease the COGS amount.

Answer 1

Amount of Overallocated Overhead that will be charged to COGS	$ 18,000	={(220000-200000)*90000/100000}
This amount will Decrease the COGS amount.