Disposition of overhead over-allocation or under-allocation, two indirect cost pools. Glavine Corporation manufactures precision equipment made to
Question:
Disposition of overhead over-allocation or under-allocation, two indirect cost pools. Glavine Corporation manufactures precision equipment made to order for the semiconductor industry. Glavine uses two manufacturing overhead cost pools-one for the overhead costs incurred in its highly automated Machining Department and another for overhead costs incurred in its labour-based Assembly Department. Glavine uses a normal costing system. It allocates Machining Department overhead costs to jobs based on actual machine-hours using a budgeted machine-hour overhead rate. It allocates Assembly Department overhead costs to jobs based on actual direct manufacturing labour-hours using a budgeted direct manufacturing labour-hour rate.
The following data are for the year 2019:
Machining Department Assembly Department
Budgeted overhead $5,850,000 $7,812,00
Budgeted machine-hours(MH) 90,000 0
Budgeted direct manufacturing
labour-hours (DMLH) 0 124,000
Actual manufacturing overhead
costs $5,470,000 $8,234,000
Machine-hours and direct manufacturing labour-hours and the ending balances (before proration of underallocated overhead) are as follows:
Actual Actual direct Balance before
machine-hours manufacturing proration, December
labour-hours 31, 2019
Costs of
Goods sold 69,000 83,200 $21,600,000
Finished
Goods 6,900 12,800 2,800,000
Work-in-
Process 16,100 32,000 7,600,000
2. Compute the under-allocated or over-allocated overhead in each department for the year. Dispose of the under-allocated or over-allocated amount in each department using:
a. Immediate write-off to Cost of Goods Sold.
b. Proration based on ending balances (before proration) in Cost of Goods Sold, Finished Goods, and Work-in-Process.
c. Proration based on the allocated overhead amount (before proration) in the ending balances of Cost of Goods Sold, Finished Goods, and Work-in-Process.
3. Which disposition method do you prefer in requirement 2? Explain.