Question

1. Compute the budgeted manufacturing overhead rate for 2017. 2. Compute the​ under- or overallocated manufacturing overhead of Radiator in 2017. Dispose of this amount using the​ following:

Homework: Chapter 4 Homework Save Score: 0.61 of 1 pt 4 of 5 (5 complete) HW Score: 92.27%, 4.61 of 5 pts % P4-39 (similar to) : Question Help The Cozy 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. FG x Data Table WIP Now enter the account b $ 4,875,000 Machine-hours Budgeted manufacturing overhead costs Overhead allocation base Budgeted machine-hours Manufacturing overhead costs incurred Actual machine-hours 65,000 Cost of Goods Sold $ 4.975,000 Finished Goods Control 60.000 Work-in-Process Control Machine-hours data and the ending balances (before proration of under- or overallocated overhead) are as follows: c. Dispose of the amoun Goods Control, and Cost proportions as a decimal Actual Machine-Hours 2017 End-of-Year Balance fol, Finished hula. (Enter the tracted.) Cost of Goods Sold 51,000 $ 10,625,000 Finished Goods Control 7,000 1,250,000 625,000 COGS Work-in-Process Control 2,000 FG WIP Print Done Choose from any list or enter any number in the input fields and then click Check Answer. ?

a. ​Write-off to Cost of Goods Sold

b. Proration based on ending balances​ (before proration) in​ Work-in-Process Control, Finished Goods​ Control, and Cost of Goods Sold

c. Proration based on the overhead allocated in 2017​(before proration) in the ending balances of​ Work-in-Process Control, Finished Goods​ Control, and Cost of Goods Sold 3. Which method do you prefer in requirement​ 2? Explain.

Answer 1

Solution

Cozy Radiator Company

1. Computation of the budgeted manufacturing overhead rate for 2017:

The company uses machine hours as allocation base,

Budgeted manufacturing overhead rate = budgeted manufacturing overhead/machine hours

Budgeted overhead cost = $4,875,000

Machine hours = 65,000

Budgeted manufacturing overhead rate = $4,875,000/65,000 = $75 per MH

2. Computation of under or over allocated manufacturing overhead in 2017:

Actual manufacturing overhead costs incurred = $4,975,000

Allocated manufacturing overhead costs = $75 x 60,000 = $4,500,000

Under allocated manufacturing overhead in 2017 = $475,000

Dispose of under allocated overhead using the following methods –

a. Write-off to cost of goods sold:

Cost of goods sold = $10,625,000

Add: under allocated overhead cost = $475,000

Total cost of goods sold = $11,100,000

Proration based on ending balances (before proration) in work in process control, finished goods control and cost of goods sold:

COST of goods sold. Pro-rated allocation of under Cost percentage absorbed Units Total Cost of Goods Sold Finished Goods Work in Process Total 51,000 $10,625,000 7,000 $1,250,000 2,000 $625,000 $12,500,000 85% $403,750 $11,028,750 10% $47,500 $1,297,500 5% $23,750 $648,750 $475,000 $12,975,000

Proration based on the overhead allocation in 2017 (before proration) in the ending balances of Work in process control, FG control and cost of goods sold:

Actual Machine hours control, FG control and cost of goods sold: percentage Pro-rated of actual allocation machine of under Cost hours absorbed Total Cost of Goods Sold Finished Goods Work in Process Total 51,000 $10,625,000 7,000 $1,250,000 2,000 $625,000 $12,500,000 85% $403,750 11.67% $55,417 3.33% $15,833 $475,000 $11,028,750 $1,305,417 $640,833 $12,975,000

1. Which method is preferred –

The method most suited for allocation of under allocated overhead is the basis of actual machine hours used. This involves allocation of under absorbed manufacturing overhead to COGS, WIP and FG on the basis of the ratio of actual machine hours.

Explanation –

The original allocation base the company follows is the use of budgeted machine hours. So, the use of actual machine hours would be give more accurate allocation without any error of estimation.