4-37 Disposition of overhead overallocation or underallocation, two indirect cost pools. Glavine Corporation manufactures precision equipment made to order for the semiconductor industry. Glavine uses two manufacturing overhead cost poolsone for the overhead costs incurred in its highly automated Machining Department and another for overhead costs incurred in its labour-based Assembly Department. Glavine uses a normal costing system. It allocates Machining Department overhead costs to jobs based on actual machine-hours using a budgeted machine-hour overhead rate. It allocates Assembly Department overhead costs to jobs based on actual direct manufacturing labour-hours using a budgeted direct manufacturing labour-hour rate.

The following data are for the year 2019:

Machining Department

Assembly Department

Budgeted overhead

$5,850,000

$7,812,000

Budgeted machine-hours (MH)

90,000

0

Budgeted direct manufacturing labour-hours (DMLH)

0

124,000

Actual manufacturing overhead costs

$5,470,000

$8,234,000

Machine-hours and direct manufacturing labour-hours and the ending balances (before proration of underallocated overhead) are as follows:

Actual Machine-Hours

Actual Direct Manufacturing Labour-Hours

Balance before Proration, December 31, 2019

Cost of Goods Sold

69,000

83,200

$21,600,000

Finished Goods

6,900

12,800

2,800,000

Work-in-Process

16,100

32,000

7,600,000

Required

Compute the budgeted overhead rates for the year in the Machining and Assembly departments.

Compute the under- or overallocated overhead in each department for the year. Dispose of the under- or overallocated amount in each department using:

Immediate write-off to Cost of Goods Sold.

Proration based on ending balances (before proration) in Cost of Goods Sold, Finished Goods, and Work-in-Process.

Proration based on the allocated overhead amount (before proration) in the ending balances of Cost of Goods Sold, Finished Goods, and Work-in-Process.

Which disposition method do you prefer in requirement 2? Explain.