Reference no: EM13151914
The Ride-On-War Company (ROW) produces a line of non-motorized boats. Row uses a normal costing system and allocates manufacturing overhead using direct manufacturing labor cost. The following data is for 2009.
Budgeted manufacturing overhead cost $100,000
Budgeted direct manufacturing labor cost $200,000
Actual manufacturing overhead cost $106,000
Actual direct manufacturing labor cost $220,000
Inventory balances on December 31, 2009 were:
Account
Work in process
Finished goods
Cost of goods sold
Ending Balance
$50,000
$240,000
$560,000
2009 direct manufacturing labor cost in ending balance
$20,000
60,000
$140,000
1. Calculate the overhead allocation rate.
2. Compute the amount of under- or overallocated overhead
3. Calculate the ending balances in work in process, finished goods and cost of goods sold if under overallocated overhead is:
a.Written off to cost of goods sold
b. Prorated based on ending balances (before proration) in each of the three accounts.
c. Prorated based on the overhead allocated in 2009 in the ending balances (before proration) in each of the three accounts.
4. Which method makes the most sense? Justify your answer.
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