Reference no: EM131650001

Problem - ErgoFurn, Inc. manufactures ergonomically designed computer furniture. ErgoFurn uses a job order costing system. On November 30, the Work in Process Inventory consisted of the following jobs:

Job No.	Item	Units	Accumulated Cost
CC723	Computer caddy	20,000	$900,000
CH291	Chair	15,000	431,000
PS812	Printer stand	25,000	250,000
			$1,581,000

On November 30, ErgoFurn's Raw Materials Inventory account totaled $668,000, and its Finished Goods Inventory totaled $3,456,400. ErgoFurn applies manufacturing overhead on the basis of machine hours. The company's manufacturing overhead budget for the year totaled $4,500,000, and the company planned to use 900,000 machine hours during the year. Through the first eleven months of the year, the company used a total of 830,000 machine hours, total manufacturing overhead amounted to $4,274,500, and Cost of Goods Sold was $8,750,250.

ErgoFurn purchased $638,000 in raw materials in December and incurred the following costs for jobs in process that month:

Job No.	Materials Issued	Machine Hours	Direct Labor Hours	Direct Labor Cost
CC723	$155,000	12,000	11,600	$122,400
CH291	$13,800	4,400	3,600	$43,200
PS812	$211,000	19,500	14,300	$200,500
DS444	$252,000	14,000	12,500	$138,000

The following jobs were completed in December and transferred to the Finished Goods Inventory:

Job No.	Item	Units
CC723	Computer caddy	20,000
CH291	Chair	15,000
DS444	Desk	5,000

ErgoFurn incurred $395,000 in manufacturing overhead in December.

Assume that actual overhead for the year was $4,669,500 and that applied overhead was $4,399,500. Why was overhead under- or overapplied for the year?

Which method of under- or overapplied overhead disposition is more appropriate for ErgoFurn: (1) assigning it all to Cost of Goods Sold or; (2) Prorating it to Work in Process, Finished Goods and Cost of Goods Sold. Why?