# Acc315 Cost Accounting: 4-30 The Ride-On-Water Company (ROW) produces a line

Acc315 Cost Accounting
4-30 Proration of overhead
The Ride-On-Water 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 is for 2011:
Budgeted manufacturing overhead cost 100,000
Budgeted direct manufacturing labor cost 200,000
Actual manufacturing overhead cost 106,000
Actual direct manufacturing labor cost 220,000

Inventory balances on December 31, 2011, were as follows:
Account Ending balance 2011 direct manufacturing labor cost in ending balance
Work in process 50,000 20,000
Finished goods 240,000 60,000
Cost of goods sold 560,000 140,000

Required:
1. Calculate the overhead allocation rate.
2. Compute the amount of under- or over allocated overhead
3. Calculate the ending balances in work in process, finished goods and cost of goods sold if under allocated overhead is:
a. Written off to cost of goods sold
b. Prorated based on ending balances (before proration) in each of the three accounts.
c. Prorated based on the overhead allocated in 2011 in the ending balances (before proration) in each of the three accounts.
4. Which method makes the most sense? Justify your answer.