Question: The Ride On Water ROW Company produces a line of non motorized boats

The Ride-On-Water (ROW) Company produces a line of non-motorized boats. ROW uses a normal job-costing system and allocates manufacturing over-head costs using direct manufacturing labour cost. The following data are available for 2012:
Budgeted manufacturing overhead costs ....... $100,000
Budgeted direct manufacturing labour cost ....... $200,000
Actual manufacturing overhead costs ....... $106,000
Actual direct manufacturing labour cost ....... $220,000
Inventory balances on December 31, 2012 were:
1. Calculate the budgeted manufacturing overhead rate.
2. Calculate the amount of underallocated or overallocated manufacturing overhead.
3. Calculate the ending balances in work-in-process, finished goods, and cost of goods sold if underallocated or overallocated 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 2012 in the ending balances, before proration, in each of the three accounts.
4. Which disposition method do you prefer in requirement 3? Explain.

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