Ti-Enne Srl uses a normal costing system with a single manufacturing overhead cost pool and machine-hours as the allocation base. The following data are for 2007:

Budgeted manufacturing overhead........................ €4800000

Overhead allocation base.................................... Machine-hours

Budgeted machine-hours.................................... 80000

Manufacturing overhead incurred.......................... €4900000

Actual machine-hours........................................ 75000

Machine-hours data and the closing balances (before proration of under allocated or over allocated overhead) are as follows:

Required
1. Calculate the budgeted manufacturing overhead rate for 2007.
2. Calculate the under- or over allocated manufacturing overhead of Ti-Enne in 2007.
Prorate this under- or over allocated amount using:
a. Immediate write-off to Cost of Goods Sold
b. Proration based on closing balances (before proration) in Work in Progress, Finished Goods and Cost of Goods Sold
c. Proration based on the allocated overhead amount (before proration) in the closing balances of Work in Progress, Finished Goods and Cost of Goods Sold.
3. Which proration method do you prefer in requirement 3? Explain.

Transcribed Image Text:

Actual machine-hours 2007 end-of year Z00 end-of-vear machine hours balance Cost of Goods Sold Finished Goods Work in Progress 60000 11000 4000 8 000000 1 250000 750000