The Ride On Wonder Company ROW produces a line of
The Ride- On- Wonder Company (ROW) produces a line of non-motorized boats. ROW uses a normal- costing system and allocates manufacturing overhead using direct manufacturing labor cost. The following data are for 2012:
Budgeted manufacturing overhead cost ......... $ 127,050
Budgeted direct manufacturing labor cost ......... $ 231,000
Actual manufacturing overhead cost ........... $ 123,000
Actual direct manufacturing labor cost.......... $ 220,000

Inventory balances on December 31, 2012, were as follows:

1. Calculate the budgeted manufacturing overhead allocation rate.
2. Compute the amount of under- or overallocated manufacturing overhead.
3. Calculate the ending balances in work in process, finished goods, and cost of goods sold if under- and overallocated manufacturing overhead is as follows:
a. Written off to cost of goods sold
b. Prorated based on the overhead allocated in 2012 in the ending balances ( before proration) in each of the three accounts
4. Which method makes the most sense? Justify youranswer.
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