Question
The Heat Radiator Company uses a normal-costing system with a single manufacturing overhead cost pool and machine-hours as the cost-allocation base. The following data are
The Heat Radiator Company uses a normal-costing system with a single manufacturing overhead cost pool and machine-hours as the cost-allocation base. The following data are for
2017:
Budgeted manufacturing overhead costs | $4,800,000 |
Overhead allocation base | Machine-hours |
Budgeted machine-hours | 60,000 |
Manufacturing overhead costs incurred | $4,900,000 |
Actual machine-hours | 55,000 |
Machine-hours data and the ending balances (before proration of under- or overallocated overhead) are as follows:
Actual Machine-Hours | 2017 End-of-Year Balance | |
Cost of Goods Sold | 44,000 | $12,000,000 |
Finished Goods Control | 9,000 | 2,625,000 |
Work-in-Process Control | 2,000 | 375,000 |
Requirements
1. | Compute the budgeted manufacturing overhead rate for 2017. | |
2. | Compute the under- or overallocated manufacturing overhead of Heat Radiator in 2017. Dispose of this amount using the following: | |
a. | Write-off to Cost of Goods Sold | |
b. | Proration based on ending balances (before proration) in Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold | |
c. | Proration based on the overhead allocated in 2017 (before proration) in the ending balances of Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold | |
3. | Which method do you prefer in requirement 2? Explain. |
Requirement 1. Compute the budgeted manufacturing overhead rate for
2017.
Begin by selecting the formula you will use. Then, enter the amounts and calculate the rate.
Budgeted manufacturing | ||||||
Budgeted manufacturing overhead | / | Budgeted machine-hours | = | overhead rate |
$4,800,000 | / | 60,000 | = | $80 |
Requirement 2. Compute the under- or overallocated manufacturing overhead of
Heat
Radiator in
2017.
Begin by selecting the formula you will use. Next, enter the amounts in the formula and compute the under- or overallocated manufacturing overhead. (Use parentheses or a minus sign when entering overallocated amounts.)
Manufacturing overhead | ||||||
Manufacturing overhead incurred | Manufacturing overhead allocated | = | underallocated (overallocated) |
$4,900,000 | $4,400,000 | = | $500,000 |
a. Dispose of this amount using a write-off to Cost of Goods Sold. Show the account balances after the write-off.
Account Balance | |
After Proration | |
Cost of Goods Sold | $12,500,000 |
Finished Goods Control | 2,625,000 |
Work-in-Process Control | 375,000 |
b. Dispose of the amount using a proration based on ending balances (before proration) in Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold. Begin by selecting the formula to calculate the adjustment to each account. Then enter the amounts in the formula. (Enter the proportions as a decimal to three decimal places, "X.XXX". Use a minus sign or parentheses to show overallocated amounts and adjustments to be subtracted.)
Proportion (decimal) | x | (Over-) Underallocated OH | = | Adjustment |
COGS | 0.800 | x | $500,000 | = | $400,000 |
FG | 0.175 | x | 500,000 | = | 87,500 |
WIP | 0.025 | x | 500,000 | = | 12,500 |
Now enter the account balances after the write-off.
Account Balance | |
After Proration | |
Cost of Goods Sold | $12,400,000 |
Finished Goods Control | 2,712,500 |
Work-in-Process Control | 387,500 |
c. Dispose of the amount using a proration based on the overhead allocated in
2017
(before proration) in the ending balances of Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold. Begin by selecting the formula to calculate the adjustment to each account. Then enter the amounts in the formula. (Enter the proportions as a decimal to three decimal places, "X.XXX". Use a minus sign or parentheses to show overallocated amounts and adjustments to be subtracted.)
Proportion (decimal) | x | (Over-) Underallocated OH | = | Adjustment |
COGS | 0.800 | x | $500,000 | = | $400,000 |
FG | x | 500,000 | = | ||
WIP | x | 500,000 | = |
I got all the way to this part, but I am not sure of which percentage to use. Can you show step-by-step of how to calculate the percentage to obtain the answer? Thank you so much. What else is needed? I am trying to figure out the percentage in Part C. It is asking for a percentage in the first entry and then multiplied by 500,000. I want to know how to get the percentage?
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