Question

The Wamth 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. i Data Table X Requirements Budgeted manufacturing overhead costs $ 4,900,000 Overhead allocation base Machine-hours Budgeted machine-hours 70,000 Manufacturing overhead costs incurred $ 5,100,000 Actual machine-hours 65,000 Machine-hours data and the ending balances (before proration of under-or overallocated overhead) are as follows: 1. Compute the budgeted manufacturing overhead rate for 2017 2. Compute the under-or overallocated manufacturing overhead of Wamth 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. Cost of Goods Sold Finished Goods Control Work-in-Process Control Actual Machine-Hours 48,000 10,000 7,000 2017 End-of-Year Balance 7,500,000 1,500,000 1,000,000 Print Done Print Done

Answer 1

Compute budgeted manufacturing overhead as follows: Budgeted manufacturing overhead rate= Budgeted Mfg. Overhead Budgeted Machine Hours $4.900.000 70,000 = $70Per machine Hour Compute Proration based on ending balances (before proration) in work-in-process control, finished goods control and costs of goods sold

2017 Ending balances (A) $7,500,000 $1,500,000 $1,000,000 $10,000,000 COGS Finished goods control Work-in Process control Total Allocation of Underapplied overhead (S550,000 x B) $412,500 $82,500 $55,000 S550,000 Proportion (B) $7,500,000 $10,000,000 = 75% $1,500,000/$10,000,000 = 15% $1,000,000 $10,000,000 = 10% Compute the Over/Under applied overhead as follows:

Actual overhead Applied overhead = $5.100.000 = (Actual machine hours * $70) = $4,550,000 (65,000 x $70) Under applied overhead: Actual is more than applied overhead. Compute the under applied overhead as follows: Under Applied Overhead = (Actual - Applied) overhead = $5,100,000 - $4,550,000 = $550,000 Compute 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:

Hours (A) 48000 10000 7000 65000 COGS Fnished goods control Work-in Process control Total Overheads Allocated (B= A x $70 $3,360,000 $ 700,000 $490,000 $4,550,000 Allocation of Underapplied overhead ($550,000 XC) $406,120 $84.590 $59.290 $550,000 Proportion (C) $3,360,000/$4,550,000 = 73.84% $700.000/S4550,000 = 15.38% $490,000/$4,550,000 = 10.78% Write off to COGS: Under applied overhead Method C is to be preffered over the other as actual machine hour is used for allocation.