Chapter 4, Problem 4.35E

Proration of overhead. 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	$25,000
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:

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

1. 1. Calculate the manufacturing overhead allocation rate.

  Required

1. 2. Compute the amount of under- or overallocated manufacturing overhead.
2. 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:
   1. a. Written off to cost of goods sold
   2. b. Prorated based on ending balances (before proration) in each of the three accounts
   3. c. Prorated based on the overhead allocated in 2017 in the ending balances (before proration) in each of the three accounts
3. 4. Which method would you choose? Justify your answer.