16) The proration method of disposing of an overhead variance prorates the variance among three accounts that include Direct Materials Inventory, Work-in-Process Inventory and Finished Goods Inventory.

17) The immediate write-off method of disposing of underapplied overhead subtracts the dollar amount from Cost of Goods Sold.

18) The proration method of disposing of overhead variances prorates the variance based on the beginning of the reporting period account balances in Cost of Goods Sold, Work-in-Process Inventory and Finished Goods Inventory.

19) In practice, proration of overhead variances among the affected accounts is undertaken when it materially affects inventory valuations and net income.

20) The following information was gathered for Elliott Company:

Budgeted direct labor hours75,000

Actual direct labor hours77,500

Budgeted factory overhead$562,500

Actual factory overhead$538,000

Cost driver of overhead costsDirect labor hours

Required:

A) Compute the budgeted factory overhead rate.

B) Compute the factory overhead applied.

C) Compute the amount of underapplied or overapplied factory overhead.

21) Jones Corporation uses a budgeted factory overhead rate to apply overhead to production. Direct labor costs are the cost driver for overhead costs. The following data are available for the year ending December 31, 2010:

Budgeted factory overhead$675,000

Actual factory overhead$726,000

Budgeted direct labor costs$450,000

Actual direct labor costs$482,000

Cost of goods sold$150,000

Direct materials inventory, December 31, 2010$120,000

Work-in-process inventory, December 31, 2010$100,000

Finished goods inventory, December 31, 2010$250,000

Required:

A) Compute the budgeted factory overhead rate.

B) Compute the applied overhead costs.

C) What is the overhead variance?

D) Prorate the overhead variance to the appropriate accounts.

22) Smith Company applies overhead based on machine hours. The following data was available:

Budgeted factory overhead$266,400

Budgeted machine hours18,500

Actual factory overhead$287,920

Actual machine hours19,050

Cost of goods sold$560,000

Direct materials inventory, ending balance$60,000

Work-in-process inventory, ending balance$190,000

Finished goods inventory, ending balance$250,000

Required:

A) Compute the budgeted factory overhead rate.

B) Compute the underapplied or overapplied factory overhead.

C) Under the immediate write-off approach to overhead variances, how would you dispose of the overhead variance?

D) If the immediate write-off approach to overhead variances is not used, how would you dispose of the overhead variance?