(Dealing with under/over allocation of overheads).

The Spring Valley Company uses a normal costing system with a single manufacturing overhead cost pool with labour hours as the chosen cost-allocation base.

The following data pertains to 2017:

Budgeted manufacturing overhead costs 3,400,000

Budgeted labour hours 50,000

Actual manufacturing overhead-incurred 3,200,000

Actual labour hours 55,000

Actual labour hours and ending balances (before proration of under-or over allocated overhead) are as follows:

Actual labour hours 2017 end-of-year balances

Cost of goods sold 40,000 hours 2,000,000

Finished goods control 11,000 hours 750,000

Work-in-process control 4,000 hours 250,000

Required

Compute the budgeted manufacturing overhead rate for 2017.

(2 marks)

(b) Compute the under-or over allocated manufacturing overhead of Spring Valley in 2017. Dispose of this amount using the following two methods;

(i) Write off to Cost of Goods Sold, and

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

marks)

How do you distinguish actual costing from normal costing?

marks)

Describe why most organisations use an annual period rather than a weekly or monthly period to compute budgeted indirect costs rates?

(2 marks)

What approaches do managers have to disposing of under-or over allocation of manufacturing overhead? Of the methods that you have mentioned which method, would you recommend that Spring Valley use? Explain your choice of method.

(4 marks)

Total 20 marks