Question

4. The Zaf 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 5,100,000 Budgeted machine-hours Budgeted manufacturing overhead rate $ 1 85,000 60 Requirement 2. Compute the under-or overallocated manufacturing overhead of Zaf Radiator in 2017. Begin by selecting the formula you will use. Next, enter the amounts in the formula and compute the under-or overallocated manufacturing overhead. (Use parentheses or a minus sign when entering overallocated amounts.) Manufacturing overhead incurred $ 5,200,000 Manufacturing overhead allocated Manufacturing overhead underallocated (overallocated) (200,000) 5,400,000 a. Dispose of this amount using a write-off to Cost of Goods Sold. Show the account balances after the write-o Account Balance After Proration Cost of Goods Sold $ 8,550,000 Finished Goods Control 3,125,000 625,000 Work-in-Process Control b. Dispose of the amount using a proration based on ending balances (before proration) in Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold. Begin by selecting the formula to calculate the adjustment to each account. Then enter the amounts in the formula. (Enter the proportions as a decimal to three decimal places, "X.XXX". Use a minus sign or parentheses to show overallocated amounts and adjustments to be subtracted.) (1) Proportion (decimal) (2) (Over-) Underallocated OH Adjustment COGS x х = FG x = WIP х Now enter the account balances after the write-off. Account Balance After Proration Cost of Goods Sold Finished Goods Control Work-in-Process Control c. Dispose of the amount using a proration based on the overhead allocated in 2017 (before proration) in the ending of 3

Answer 1

1. BUDGETED MFG OH RATE AND UNDER / OVER APPLIED OH

budgeted mfg oh	A	5,100,000
budgeted machine hours	B	85,000
rate	C= A/B	60
Actual machine hours	D	90,000
allocated overhead	E = C X D	5,400,000
Actual mfg OH	F	5,200,000
Over / (under) applied	G = E-F	200,000

2.

2.a	Balance before dispose of over applied OH	overapplied OH	Bal. after disposal of Over applied OH
cost of good sold	8,750,000	200000	8,550,000
Finished Good control	3,125,000	0	3,125,000
WIP Control	625,000	0	625,000
	12,500,000		12,300,000

2B

2.b	Disposal of over applied oh based on ending balance
	Year end balance	%	%	Over applied OH	prop.	Net balance
A	B	C	D	E	F= D x E	G= B- F
cost of good sold	8,750,000	8750000/12500000	0.700	200,000	140,000	8,610,000
Finished Good control	3,125,000	3125000/12500000	0.250	200,000	50,000	3,075,000
WIP Control	625,000	625000/12500000	0.050	200,000	10,000	615,000
	12,500,000		1.000		200,000	12,300,000

2C

2.b	Disposal of over applied oh based on overhead allocation rate as computed in first requirement
	Year end balance	Machine Hours	Rate	allocated overhead	prop.	prop.	Over applied OH	prop.	Net balance
A	B	C	D	E = C X D	F	G	H	I= G X H	J = B- I
cost of good sold	8,750,000	63,000	60	3,780,000	3780000/5400000	0.700	200,000	140,000	8,610,000
Finished Good control	3,125,000	18,000	60	1,080,000	1080000/5400000	0.200	200,000	40,000	3,085,000
WIP Control	625,000	9,000	60	540,000	540000/5400000	0.100	200,000	20,000	605,000
	12,500,000			5,400,000		1.000		200,000	12,300,000

3

• WHICH METHOD DO YOU PREFER ??
• Alternative (c)  Disposal of over applied oh based on overhead allocation rate as computed in first requirement is theoretically peferred over (a) Disposal of over applied oh based by writting off to COGS and (b) Disposal of over applied oh based on ending balance as this method use actual machin hours for disposing over applied OH.
• This alternative yeilds the same ending balance of WIP, Finished good and COGS had the actual idirect cost rate been used.