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2c. Proration based on Allocated amount of Overheads Step 1: Proration of Over/ under allocated overheads Allocated Allocated Underallo Overheads of Overheads of Overallocat cated

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2c. Proration based on Allocated amount of Overheads Step 1: Proration of Over/ under allocated overheads Allocated Allocated Underallo Overheads of Overheads of Overallocat cated Actual Machining Dept Assembly Dept ed Mach Assembly Machine Actual @ 65 per @ 63 per Dept Dept hours Labour hours Machine hour Machine hour Overheads Overhead COGS 69000 83200 1485000 5241600 382500 110500 Finished Goods 5900 12800 448500 806400 38250 17000 WIP 16100 32000 1046500 2016000 89250 42500 92000 128000 5980000 4064000 510000 170000 Note: 1. Machining Dept. Overallocated overheads 510000 have been distributed in ratio of allocated Overhead of Machining Dept before proration i.e. 4485000:448500:1046500 2. Assembly Dept Underallocated overheads 170000 have been distributed in ratio of allocated overheads of Assembly Deot before proration i.e. 5241600:806400:2016000 Step 2: Calculation of Prorated Costs of COGS, Finished Goods, WIP Less: Add: Overallocate Underallocated Cost before d Mach Dept |Assembly Dept |Cost after proration Overheads Overheads Proration COGS 21600000 382500 110500 21328000 Finished Goods 2800000 38250 17000 2778750 WIP 7600000 -89250 42500 7553250 32000000 -510000 170000 31660000 3. Proration of Overallocated or underallocated Overheads in ratio of Allocated Overheads is the best method as it gives us Actual Overheads distributed proportionately among COGS, Finished Goods and WIP. In other words this method leads to Actual Overheads distributed over actual machine hours (or actual labour hours, as the case may be)

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