Proration of overhead the Ride-On-Water Company (ROW) produces a line of non-motorize boats. ROW uses a normal costing system and allocates manufacturing overhead using direct manufacturing labor cost. The following data is for 2009:

1. Calculate the overhead allocation rate.

2. Compute the amount of under- or over allocated overhead

3. Calculate the ending balances in work in process, finished goods and cost of goods sold if underallocated overhead is:

a. Written off to cost of goods sold

b. Prorated based on ending balances (before proration) in each of the three accounts.

c. Prorated based on the overhead allocated in 2009 in the ending balances (before proration) in each of the three accounts.

4. Which method makes the most sense? Justify your answer.

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Budgeted manufacturing overhead cost Budgeted direct manufacturing labor cost Actual manufacturing overhead cost Actual direct manufacturing labor cost Inventory balances on December 31, 2009 were: $100,000 $200,000 $106,000 S220,000 2009 direct manufacturing labor cost in ending balance Ending balance S 50,000 240,000 560,000 Account Work in process Finished goods Cost of goods sold $ 20,000 60,000 140,000