See attached Excel file.
Frankling & Son Printing used a normal costing system. It has two direct cost pools, materials and labor and one indirect cost pool, overhead. Overhead was charged to printing jobs on the basis of direct labor cost. The following information was known about the firm for 1762 (reference attachment).
There was no work in process on Jan 1, 1762 and there were two jobs in process on Dec 31, 1762. The first job used £25 of materials so far and £20 of labor. The second job had used £15 worth of material and £32 of labor. Franklin & Son Printing had no finished good inventories because all printing jobs were based on orders that, when completed, were transferred to cost of goods sold.
Please use excel to answer the following questions:
1. Compute the overhead allocation.
2. Calculate the balance in ending work in process and in cost of goods sold.
3. Calculate the under-or overallocated overhead.
4. Calculate the ending balances in work in process and cost of goods sold if the under- or overallocated overhead amount is:
a) Written off to cost of goods sold
b) Prorated using the ending balance (before proration) in cost of goods sold and work-in-process control accounts.
5. Which of the methods in requirement 4 would you choose? Explain.
Your response is in Excel and gives you a template for similar problems. The formulas are in the cells (click to see computations). A discussion gives the rationale for selecting a method for handling the over/under applied overhead.