Proration of overhead. (20 minutes) (Z. Iqbal, adapted) Ti-Enne, Srl, uses a single manufacturing overhead cost pool in its job-costing system.

It uses a normal costing system with actual machine hours as the allocation base. The following data are for 2000:  lo1

REQUIRED 1. Calculate the budgeted manufacturing overhead rate for 2000.
2. Calculate the under or overallocated manufacturing overhead of Ti-Enne in 2000. Prorate this under- or overallocated amount using:

a. Immediate write-off to Cost of Goods Sold

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

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

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Budgeted manufacturing overhead Overhead allocation base Budgeted machine-hours Manufacturing overhead incurred Actual machine-hours Lit 1,800 million Machine-hours 80,000 Lit 4,900 million 75,000 Machine-hours data and the ending balances (before proration of underal- located or overallocated overhead) are as follows: ACTUAL MACHINE-HOURS Cost of Goods Sold 60,000 11,000 4,000 Finished Goods Work in Progress 2000 END OF YEAR BALANCE Lit 8,000 million 1,250 million 750 million