Question

The Zef 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 rate 1 X - Data Table * Requirements - X Budgeted manufacturing overhead costs $ 4,675,000 Overhead allocation base Machine-hours Budgeted machine-hours 85,000 Manufacturing overhead costs incurred $ 4,925,000 Actual machine-hours 80,000 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 Zef 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 56,000 20,000 4,000 2017 End-of-Year Balance 7,000,000 2,000,000 1,000,000 Print Print Done Done Print Done

Answer 1

1. Budgeted manufacturing overhead costs/Budgeted machine-hours = Budgeted manufacturing overhead rate

$4675000/$85000 = $55 per machine-hour

2.

Manufacturing overhead costs incurred	4925000
Manufacturing overhead costs allocated (80000 x $55)	4400000
Under-allocated manufacturing overhead $	525000

	Account	Debit	Credit
a.	Cost of goods sold	525000
	Manufacturing overhead costs		525000
b.	Cost of goods sold	367500
	Finished goods control	105000
	Work-in-process control	52500
	Manufacturing overhead costs		525000
c.	Cost of goods sold	367500
	Finished goods control	131250
	Work-in-process control	26250
	Manufacturing overhead costs		525000

Working:

b.		Balance (before proration)	Percent of Total Balance	Allocation of Under-allocated overhead
	Cost of goods sold	7000000	70%	367500
	Finished goods control	2000000	20%	105000
	Work-in-process control	1000000	10%	52500
	Total	10000000	100%	525000
c.		Overhead allocated (before proration)	Percent of Total Allocated	Allocation of Under-allocated overhead
	Cost of goods sold (56000 x $55)	3080000	70%	367500
	Finished goods control (20000 x $55)	1100000	25%	131250
	Work-in-process control (4000 x $55)	220000	5%	26250
	Total	4400000	100%	525000

3. Method c. is preferred since it allocates the under-allocated overhead in the same proportion of the cost driver usage and the original allocation of overheads.