Question

Premier Golf Carts makes custom golf carts that it sells to dealers across the Southeast. The carts are produced in two departments, fabrication (a mostly automated department) and custom finishing (a mostly manual department). The company uses a normal-costing system in which overhead in the fabrication department is allocated to jobs on the basis of machine-hours and overhead in the finishing department is allocated to jobs based on direct labor-hours. During May, Premier Golf Carts reported actual overhead of $ 49,500 in the fabrication department and $ 22,200 in the finishing department. Additional information follows:
Manufacturing overhead rate (fabrication department)....$ 20 per machine-hour
Manufacturing overhead rate ( finishing department).....$ 16 per direct labor-hour
Machine-hours (fabrication department) for May.....2,000 machine-hours
Direct labor-hours (finishing department) for May........1,200 labor-hours
Work in process inventory, May 31.....................$ 50,000
Finished goods inventory, May 31....................$150,000
Cost of goods sold, May..........................$300,000
Premier Golf Carts prorates under-and overallocated overhead monthly to work in process, finished goods, and cost of goods sold based on the ending balance in each account.

Required
1. Calculate the amount of overhead allocated in the fabrication department and the finishing department in May.
2. Calculate the amount of under-or overallocated overhead in each department and in total.
3. How much of the under- or overallocated overhead will be prorated to
(a) work in process inventory,
(b) finished goods inventory,
(c) cost of goods sold based on the ending balance (before proration) in each of the three accounts? What will be the balance in work in process, finished goods, and cost of goods sold after proration?
4. What would be the effect of writing off under-and overallocated overhead to cost of goods sold? Would it be reasonable for Premier Golf Carts to change to this simpler method?



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  • CreatedMay 14, 2014
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