(Underapplied or overapplied overhead) At year end 2010, Dub’s Wind Generator Co. had a $40,000 debit balance in its Manufacturing Overhead Control account. Overhead is applied to products based on direct labor cost. Relevant account balance information at year end follows:
|
Work in Process |
Finished Goods |
Cost of Goods |
|
|
Inventory |
Inventory |
Sold |
|
|
Direct material |
$20,000 |
$ 80,000 |
$120,000 |
|
Direct labor |
10,000 |
40,000 |
50,000 |
|
Factory overhead |
20,000 |
80,000 |
100,000 |
|
$50,000 |
$200,000 |
$270,000 |
a. What predetermined OH rate was used during the year?
b. Provide arguments to be used for deciding whether to prorate the balance in the overhead account at year end.
c. Prorate the overhead account balance based on the relative balances of the appropri ate accounts.
d. Identify some possible reasons that the company had a debit balance in the over head account at year end.