COSTING l- Donna Corporation manufactures custom cabinets for kitchens. It uses

Question

COSTING l- Donna Corporation manufactures custom cabinets for kitchens. It uses a norma des 4-4Costing system with two direct-cost categories-direct materials and direct manuf turing labor-and one indirect-cost pool, manufacturing overhead costs. It provi the following information about manufacturing overhead costs for 2017. $960,000 Budgeted manufacturing overhead costs Budgeted direct manufacturing labor-hours Actual manufacturing overhead costs Actual direct manufacturing labor-hours 2,000 hours $992 000 1,000 hours The following information is available as of December 31, 2017. Account Balance (Before Proration) S 40,000 Manufacturing Overhead in Each Account Balance Allocated in the Current Year (Before Proration) S 14,400 Account Work-in-Process Control Finished Goods Control Cost of Goods Sold 60,000 24,000 1,900,000 $2,000,000 921,600 $960,000 Calculate the underallocated or overallocated manufacturing overhead at the end of 2017 and prorate it to Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold accounts based on the allocated manufacturing overhead in each account balance using normal costing Choosing Among Approaches Which of the three approaches of dealing with underallocated overhead and overallocated overhead is the best one amount of undera following table indicates to use? When making this decision, managers should consider the llocated or overallocated overhead and the purpose of the adjustment, as the

Explanation / Answer

In our example manufacturing overhead in under allocated because actual overhead is more than applied overhead. The under-applied overhead has been calculated below:

Under-applied manufacturing overhead = Total manufacturing overhead cost actually incurred – Total manufacturing overhead applied to work in process

=$992,000-960,000=$32,000

Allocation of underallocated overheads among work in progress, finished goods, Cost of goods sold

Account Name Debit Credit Work in progress 640 Finished Goods 960 Cost of goods sold 30,400 Manufacturing overhead 32,000

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