Proration of overhead. (Z. Iqbal, adapted) 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 2011:
|
Budgeted manufacturing overhead costs |
$4,800,000 |
|
Overhead allocation base |
Machine hours |
|
Budgeted machine hours |
80,000 |
|
Manufacturing overhead costs incurred |
$4,900,000 |
|
Actual machine hours |
75,000 |
Machine hours data and the ending balances (before proration of under or overallocated overhead) are as follows:
|
Actual Machine Hours |
2011 End of Year Balance |
|
|
Cost of Goods Sold |
60,000 |
$8,000,000 |
|
Finished Goods Control |
11,000 |
1,250,000 |
|
Work in Process Control |
4,000 |
750,000 |
1. Compute the budgeted manufacturing overhead rate for 2011.
2. Compute the under or overallocated manufacturing overhead of Zaf Radiator in 2011. 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 2011 (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.