Allocation and proration of overhead. Franklin & Son Printing designed and printed sales brochures, catalogues, and pamphlets. The business was dissolved in early 1763.

Franklin & 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.

There was no work in process on Jan. 1, 1762 and there were two jobs in process on Dec. 31, 1762. The first job had 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 goods inventories because all printing jobs were based on orders that when completed, were transferred to cost of goods sold.

1. Compute the overhead allocation rate.

2. Calculate the balance in ending work in process and in cost of goods sold.

3. Calculate 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 requirement4would you choose? Explain.

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Budgeted material costs Budgeted labor costs Budgeted overhead costs Actual material costs Actual labor costs Actual overhead costs £1000 £2000 £1500 £ 900 £1800 £1250