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 follo
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
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Rating:
/5
Solution: Proration of overhead. (Z. Iqbal, adapted)