The Finer furniture company produces expensive desks for executives. The wood for the desks are cut into standard sizes and the desks are assembled in the Construction and Assembly (C&A) dept. The assembled desk are then sent to the Finishing Dept. to be stained. Overhead costs in the C&A dept are allocated to production using machine-hours, and overhead costs in the Finishing Dept. are allocated using direct labor hours.
Finer Furniture uses a normal costing system and has the following data for 2008

Ending balances, machine hours and direct labor hours data are as follow

Calculate the over- or under- allocated overhead for each of the C&A and Finishing depts. in 2008.
Calculate the ending balances in work in process, finished goods and cost of goods sold if the under- or over- allocated overhead amounts in each dept are:
Written off to cost of goods sold
Prorated based on the ending balance (before proration) in each of the three accounts
Prorated based on the overhead allocated in 2008 (before proration) in the ending balances in each of the three accounts.
Which method would you choose?

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Finishing $50 per direct labor hour C&A Budgeted overhead rate Actual overhead cost Actual Hours $40 per machine hour S163,000 $87,000 2,000 labor hours 4000 machine hours Bal. before pror. Dec. 31, 08 Actual Machine-hrs Actual Dir. Lab-hrs Account Work in process Finished goods Cost of goods sold $150,000 250,000 1,600,000 200 100 600 3,200 400 1,500