The Ride-On-Water (ROW) Company produces a line of non-motorized boats. ROW uses a normal job-costing system and allocates manufacturing overhead costs using direct manufacturing labour cost. The following data are available for 2015:
Budgeted manufacturing overhead costs.....................$100,000
Budgeted direct manufacturing labour cost....................200,000
Actual manufacturing overhead costs...........................106,000
Actual direct manufacturing labour cost........................220,000
Inventory balances on December 31, 2015, were:
Account Ending Balance 2015 Direct Manufacturing
Labour Cost in Ending Balance
Work-in-Process..........$ 50,000.........................$ 20,000
Finished Goods............240,000...........................60,000
Cost of Goods Sold.......560,000.........................140,000
Required
1. Calculate the budgeted manufacturing overhead rate.
2. Calculate the amount of under allocated or over allocated manufacturing overhead.
3. Calculate the ending balances in Work-in-Process, Finished Goods, and Cost of Goods Sold if under allocated or over allocated 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 2015 in the ending balances, before proration, in each of the three accounts.
4. Which disposition method do you prefer in requirement 3? Explain.