94%(591)556 out of 591 people found this document helpful
This preview shows page 42 - 45 out of 63 pages.
4-41Proration of overhead with two indirect cost pools. Adventure Designs makes custombackyard play structures that it sells to dealers across the Midwest. The play structures areproduced in two departments, fabrication (a mostly automated department) and custom finishing(a mostly manual department). The company uses a normal-costing system in which overhead inthe fabrication department is allocated to jobs on the basis of machine-hours and overhead in thefinishing department is allocated to jobs based on direct manufacturing labor-hours. During May,Adventure Designs reported actual overhead of $42,600 in the fabrication department and$39,800 in the finishing department. Additional information follows:Adventure Designs prorates under- and overallocated overhead monthly to work in process,finished goods, and cost of goods sold based on the ending balance in each account.Calculate the amount of overhead allocated in the fabrication department and the finishingdepartment in May.Required:1.Calculate the amount of under- or overallocated overhead in each department and in total.2.How much of the under- or overallocated overhead will be prorated to (a) work-in-processinventory, (b) finished-goods inventory, and (c) cost of goods sold based on the endingbalance (before proration) in each of the three accounts? What will be the balance in work-in-process, finished-goods, and cost of goods sold after proration?3.What would be the effect of writing off under- and overallocated overhead to cost of goodssold? Would it be reasonable for Adventure Designs to change to this simpler method?SOLUTION(15 min.) Proration of overhead with two indirect cost pools.1. Fabrication department:Overhead allocated = $12 per machine-hour × 3,200 machine-hours = $38,4004-43