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:

Required
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.

Transcribed Image Text:

2012 direct manufacturing labor cost Account Work in process Finished goods Cost of goods sold Ending balance $51,000 238,000 561,000 in ending balance $19,800 59,400 140,800