The Zef 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	$4,950,000
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

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.)

x

=

Adjustment

COGS		x		=
FG		x		=
WIP		x		=

Now enter the account balances after the write-off.

	Account Balance
	After Proration
Cost of Goods Sold
Finished Goods Control
Work-in-Process Control

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.)

x

=

Adjustment

COGS		x		=
FG		x		=
WIP		x		=

Now enter the account balances after the write-off.

	Account Balance
	After Proration
Cost of Goods Sold
Finished Goods Control
Work-in-Process Control

Requirement 3. Which method do you prefer in requirement 2? Explain.

Alternative

(a)

(b)

(c)

is theoretically preferred over

(a) and (b)

(a) and (c)

(b) and (c)

. This alternative yields the same ending balances in work in process, finished goods, and cost of goods sold that would have been reported

had actual indirect cost rates been used

had budgeted indirect cost rates been used

had the over- understatement occurred in only the goods sold

.