Reference no: EM131663920

Question: 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 2017:

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                    2017 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 2017.

2. Compute the under- or overallocated manufacturing overhead of Zaf 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.