Allocation of manufacturing overhead and disposition of over/underallocation. (SMA, heavily adapted) Nicole Limited is a company that produces machinery to customer order. Its job-costing system (using normal costing) has two direct-cost categories (direct materials and direct manufacturing labour) and one indirect-cost pool (manufacturing overhead, allocated using a budgeted rate based on direct manufacturing labour costs). The budget for 2007 was:

Direct manufacturing labour $504,000 Manufacturing overhead $302,400 At the end of 2007, two jobs were incomplete: No. 1768B (total direct manufacturing labour costs were $13,200) and No. 1819C (total direct manufacturing labour costs were $46,800).

Machine time totalled 287 hours for No. 1768B and 647 hours for No. 1819C. Direct materials issued to No. 1768B amounted to $26,400. Direct material for No. 1819C came to $50,400. CHAPTER 4 Total charges to the Manufacturing Overhead Control account for the year were

$223,200. Direct manufacturing labour charges made to all jobs were $480,000, representing 20,000 direct manufacturing labour-hours.

There were no beginning inventories. In addition to the ending work in process, the end¬

ing finished goods showed a balance of $187,200 (including a direct manufacturing labour cost component of $48,000). Sales for 2007 totalled $3,240,816, cost of goods sold was $1,920,000, and marketing costs were $1,029,444.

Nicole prices on a cost-plus basis. It currently uses a guideline of cost plus 40% of cost.

Required 1. Prepare a detailed schedule showing die ending balances in the inventories and cost of goods sold (before considering any under- or overallocated manufacturing overhead). Show also the manufacturing overhead allocated to these ending balances.

2. Compute the under- or overallocated manufacturing overhead for 2007.

3. Prorate the amount computed in requirement 2 on the basis of:

a. The ending balances (before proration) ofwork in process, finished goods, and cost of goods sold

b. The allocated overhead amount (before proration) in the ending balances of work in process, finished goods, and cost of goods sold 4. Assume that Nicole decides to immediately write off to Cost of Goods Sold any under- or overallocated manufacturing overhead. Will operating income be higher or lower than the operating income that would have resulted from the proration in requirements 3

(a) and 3(b)?

5. Calculate the cost of job No. 1819C if Nicole Limited had used the adjusted allocationrate approach to disposing of under- or overallocated manufacturing overhead in 2007.