Question

%x P4-39 (similar to) Question Help The Home 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: E: (Click the icon to view the following data.) Data Table Read the requirements. Manufacturing overhead incurred Manufacturing overhead allocated Budgeted manufacturing overhead costs S 4,875,000 $ 4,925,000 $ 4,500,000 Overhead allocation base a. Dispose of this amount using a write-off to Cost of Goods Sold. Show the account ba Budgeted machine-hours Manufacturing overhead costs incurred Machine-hours 65,000 4,925,000 $ Account Balance Actual machine-hours 60,000 Machine-hours data and the ending balances (before proration of under-or overallocated overhead) are as follow Cost of Goods Sold After Proration 10,625,000 1,250,000 625,000 Finished Goods Control Actual Machine-Hours 2017 End-of-Year Balance Work-in-Process Control Cost of Goods Sold $ 51,000 7,000 Finished Goods Control 10,625,000 1,250,000 625,000 Enter any number in the edit fields and then click Check Answer. Work-in-Process Control 2,000

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

1. Compute the budgeted manufacturing overhead rate for 2017

= Budgeted manufacturing overhead / Budgeted machine-hours

= 4,875,000 / 65,000

= 75

2. Compute the under or over-allocated manufacturing overhead of Zaf radiator in 2017

Actual overhead	4,925,000
Allocated overhead (60,000*75)	4,500,000
Under-allocated overhead	425,000

A. Write off to costs of goods sold

The under-allocated overhead will be charged to the cost of goods sold.

After proration:

Cost of goods sold	11,050,000
Finished goods control	1,250,000
Work-in-process control	625,000

B. Proration based on ending balances (before proration) in work-in-process control, finished goods control, and costs of goods sold

	2017 Ending balances	Proportion	Allocation of under-allocated overhead
	(a)	(b) = (a) / 12,500,000	425,000 * (b)
Cost of goods sold	10,625,000	85%	361,250
Finished goods control	1,250,000	10%	42,500
Work-in-process control	625,000	5%	21,250
	12,500,000		425,000

After proration:

Cost of goods sold	10,986,250
Finished goods control	1,292,500
Work-in-process control	646,250

C. Proration based on the overhead allocated in 2014 (before proration) in the ending balances of Work-in-process control, finished goods control, and cost of goods sold

	Hours	2017 Ending balances	Proportion	Allocation of under-allocated overhead
	(a)	(b) = (a) * 75	(c) = (b) / 4,500,000	425,000 * (c)
Cost of goods sold	51,000	3,825,000	85%	361,250
Finished goods control	7,000	525,000	11.67%	49,583
Work-in-process control	2,000	150,000	3.33%	14,167
	60,000	4,500,000		425,000

After proration:

Cost of goods sold	10,986,250
Finished goods control	1,299,583
Work-in-process control	639,167

3. Which method is preferred in requirement 2? Why?

The method (c) is to be preferred as it considers the actual machine hours allocated.