The Ride-On-Wave 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 2017:

Budgeted manufacturing overhead cost...........................................$125,000

Budgeted direct manufacturing labor cost........................................$250,000

Actual manufacturing overhead cost...............................................$117,000

Actual direct manufacturing labor cost.............................................$228,000

Inventory balances on December 31, 2017, were as follows:

Required
1. Calculate the 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- or overallocated manufacturing overhead is as follows:
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 2017 in the ending balances (before proration) in each of the three accounts
4. Which method would you choose? Justify your answer.

Transcribed Image Text:

Account Work in process Finished goods Cost of goods sold Ending balance $50,700 245,050 549,250 2017 direct manufacturing labor cost in ending balance $20,520 59,280 148,200