Disposition of overhead over-allocation or under-allocation, two indirect cost pools. Glavine Corporation manufactures precision equipment made to order for the semiconductor industry. Glavine uses two manufacturing overhead cost pools€”one for the overhead costs incurred in its highly automated Machining Department and another for overhead costs incurred in its labour-based Assembly Department. Glavine uses a normal costing system. It allocates Machining Department overhead costs to jobs based on actual machine hours using a budgeted machine hour overhead rate. It allocates Assembly Department overhead costs to jobs based on actual direct manufacturing labour-hours using a budgeted direct manufacturing labour-hour rate.

The following data are for the year 2013:

Machine hours and direct manufacturing labour-hours and the ending balances (before proration of underallocated overhead) are as follows:

REQUIRED
1. Compute the budgeted overhead rates for the year in the Machining and Assembly Departments.
2. Compute the under-allocated or over-allocated overhead in each department for the year. Dispose of the under-allocated or over-allocated amount in each department using:
a. Immediate write-off to Cost of Goods Sold.
b. Proration based on ending balances (before proration) in Cost of Goods Sold, Finished Goods, and Work-in-Process.
c. Proration based on the allocated overhead amount (before proration) in the ending balances of Cost of Goods Sold, Finished Goods, and Work-in-Process.
3. Which disposition method do you prefer in requirement 2? Explain.

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Machining Department Assembly Department $5,850,000 Budgeted overhead Budgeted machine hours (MH) Budgeted direct manufacturing labour-hours (DMLH) Actual manufacturing overhead costs $7,812,000 0 124,000 $8,234,000 90,000 $5,470,000 Actual Machine Hours Actual Direct Manufacturing Balance before Proration, December 31, 201:3 Labour-Hours $21,600,000 Cost of Goods Sold Finished Goods Work-in-Process 69,000 6,900 16,100 83,200 12,800 32,000 2,800,000 7,600,000