Disposition of overhead over/underallocation, two indirect-cost pools. The Glavine Corporation manufactures precision equipment made to order for the semiconductor industry.

Glavine uses two manufacturing overhead cost pools—one for the overhead costs incurred in its highly automated Machining Department and another for overhead costs incurred in its labourpaced Assembly Department. Glavine uses a normal costing system. It allocates Machining Department overhead costs to jobs based on actual machine hours using a budgeted machinehour overhead rate. It allocates Assembly Department overhead costs to jobs based on actual direct manufacturing labour-hours using a budgeted direct manufacturing labour-hour rate.

The following data are for the year 2007:

Machining Aissembly Department Department Budgeted overhead $7,200,000 Budgeted machine hours 100,000 Budgeted direct manufacturing labour-hours 0 Actual manufacturing overhead costs $7,440,000

$6,000,000 0

125,000

$5,640,000 Machine-hours and direct manufacturing labour-hours and the ending balances (before pro¬

ration of underallocated overhead) are as follows:

Actual Direct Balance before Actual Manufacturing Proration, Machine-Hours Labour-Hours December 31, 2007 Cost of Goods Sold 67,500 Finished Goods 4,500 Work in Process 18,000 90,000 $19,200,000 4,800 900,000 25,200 3,900,000 Required 1. Compute the budgeted overhead rates for the year 2007 in the Machining and Assembly Departments.

2. Compute the under- or overallocated overhead in each department in 2007. Dispose ofthe under- or overallocated amount in each department using:

a. Immediate write-off to Cost of Goods Sold.

b. Proration based on ending balances (before proration) in'Cost of Goods Sold, Finished Goods, and Work in Process.

c. Proration based on the allocated overhead amount (before proration) in the ending bal¬

ances ofCost ofGoods Sold, Finished Goods, and Work in Process.

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