Disposition of underallocated or overallocated overhead—Advanced. (Z. Iqbal, adapted) es € ®

Naf Radiator Company uses a normal costing system with a single manufacturing overhead

(MOH) cost pool and machine hours (MH) as the cost-allocation base. The following data 1, $60 per machine hour are for 2010:

REQUIRED 1. Compute the budgeted manufacturing overhead rate for 2010.
2. Compute the underallocated or overallocated manufacturing overhead of Naf Radiator in 2010. Dispose of this underallocated or overallocated amount using

a. Write-off to Cost of Goods Sold

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

c. Proration based on the allocated overhead amount (before proration) in the ending balances of Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold 3. Which method do you prefer in requirement 2? Explain.LO1

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Budgeted manufacturing overhead (MOH) $4,800,000 Overhead allocation base machine hours (MH) Budgeted machine hours (MH) 80,000 Manufacturing overhead (MOH) incurred $4,900,000 75,000 Actual machine hours (MH) Machine-hours data and the ending balances (before proration of underallocated or overallocated overhead) are as follows: Actual Machine Hours (MH) 2010 End-of-Year Balance Cost of Goods Sold Finished Goods Control 60,000 11,000 $8,000,000 1,250,000 Work-in-Process Control 4,000 750,000