USA: +1 (725) 712-1730 
Sign in
Allocation and proration of overhead. Resource Room prints custom training material for corporations. The business was started January 1, 2017 The company uses a normal- costing system. It has two direct-cost pools, materials and labor and one indirect-cost pool overhead Overhead is charged to printing jobs on the basis of direct labor cost. The following. Information is available for 2017. There were two jobs in process on December 31 2017: Job 11 and Job 12. Costs added to each job as of December 31 are as follows: Resource Room has no finished-goods inventories because all printing jobs are transferred to cost of goods sold when completed. 1 Compute the overhead allocation rate 2. Calculate the balance in ending work in process and cost of goods sold before any adjustments for under- or overallocated overhead. Calculate under- or overallocated overhead. Calculate the ending balances in work in process and cost of goods sold if the under- or overallocated overhead amount is as follows: a. Written off to cost of goods sold b Prorated using the overhead allocated in 2017 (before proration) in the ending balances of cost of goods sold and work-in-process control accounts. Which of the methods in requirement 4 would you choose? Explain.
Expert Answer
| Budgeted Overhead Cost | 266,000 | ||||||||||
| Budgeted Labor Cost | 190,000 | ||||||||||
| Recovery rate | =266000/190000 | ||||||||||
| Recovery rate per labor cost | 1.40 | ||||||||||
| Actual Material | 158,000 | ||||||||||
| Actual labor | 175,000 | ||||||||||
| WIP closing | Material | Labor | |||||||||
| Job 11 | 4,720 | 5,700 | |||||||||
| Job 12 | 5,090 | 6,900 | |||||||||
| Total | 9,810 | 12,600 | |||||||||
| Transfer to Finished= Total-WIP | |||||||||||
| Actual Material | 148,190 | ||||||||||
| Actual labor | 162,400 | ||||||||||
| Category | Finished | WIP | Total | ||||||||
| Material | 148,190 | 9,810 | 158,000 | ||||||||
| Labor | 162,400 | 12,600 | 175,000 | ||||||||
| Overhead-Recovered @ 140% of labor | 227,360 | 17,640 | 245,000 | ||||||||
| Balance before adjustment to overhead under-allocation | 537,950 | 40,050 | 578,000 | ||||||||
| Option 1-Underallocated overhead (247200-245000) | 2,200 | 2,200 | |||||||||
| Balance after adjusting overhead under-allocation | 540,150 | 40,050 | 580,200 | ||||||||
| Option 2-Underallocated overhead in overhead allocated rate | 2,042 | 158 | 2,200 | ||||||||
| 2200*227360/245000 | |||||||||||
| 2200*17640/245000 | |||||||||||
| Balance before adjustment to overhead under-allocation | 537,950 | 40,050 | 578,000 | ||||||||
| Balance after adjusting overhead under-allocation | 539,992 | 40,208 | 580,200 | ||||||||
| We will choose the option 2 because the underallocated overhead relates to 2017 and hence the charge should spread on all acitivity whether cost of goods sold or Closing WIP | |||||||||||
