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Proration of overhead

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Please see the attached file.

1) Compute the budgeted manufacturing overhead rate for 2004.

2) Compute the under-or over-allocated manufacturing overhead of Zaf Radiator in 2004. Dispose of this amount using

a) Write-off Cost of Goods Sold
b) Proration based on ending balances (before proration) in Work in Process, Finished Goods, and Cost of Goods sold
c) Proration based on the allocated overhead amount (before proration) in the ending balances of Work in Process, Finished Goods, and Cost of Goods Sold

3) Which method do you prefer in requirement 2? Explain.

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Solution Summary

The solution explains how to prorate the under or overapplied overhead

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Please see the attached file.

Proration of overhead. (Z. Iqbal adapted) The Zaf Radiator Company uses a normal-costing with a single manufacturing overhead cost pool and machine-hours as the cost-allocation base. The following data are for 2004:

Budgeted manufacturing overhead $4,800,000
Overhead allocation base Machine-hours
Budgeted machine-hours 80,000
Manufacturing overhead incurred 4,900,000
Actual machine-hours 75,000

Machine-hours data and the ending balances (before proration of under-or over-allocated overhead) are as follows:
Actual Machine-Hours 2004 End of Year Balance
Cost of Goods Sold 60,000 $8,000,000
Finished Goods 11,000 1,250,000
Work in Process 4,000 750,000

1) Compute the budgeted manufacturing overhead rate for 2004.

Budgeted ...

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