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Class Example Solution

The document discusses the calculation and allocation of manufacturing overhead costs. It provides budgeted and actual overhead amounts, direct labor costs, and inventory balances. It then shows three approaches to allocating under-absorbed overhead: [1] prorating it to work in process, finished goods and cost of goods sold accounts based on their ending balances, [2] prorating it based on the overhead already included in the ending inventory accounts, and [3] an immediate write-off to cost of goods sold.

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58 views6 pages

Class Example Solution

The document discusses the calculation and allocation of manufacturing overhead costs. It provides budgeted and actual overhead amounts, direct labor costs, and inventory balances. It then shows three approaches to allocating under-absorbed overhead: [1] prorating it to work in process, finished goods and cost of goods sold accounts based on their ending balances, [2] prorating it based on the overhead already included in the ending inventory accounts, and [3] an immediate write-off to cost of goods sold.

Uploaded by

PASCHAL IBELE
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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Budgeted

Indirect Cost Actual Indirect


A: rate Cost rate
Assembly-support costs A 8,300,000 6,520,000 Step 4:
Allocation base - Direct Labour hours B 166,000 163,000 Step 3:
Rates A/B 50 40 Step 5:

B: Actual Costing Normal Costing


Step 1: Cost Object Laguna Model Mission Model Laguna Model
Step 2: Direct Costs
Direct Material 106,760 127,550 106,760
Direct Labour 36,950 41,320 36,950
Prime Costs A 143,710 168,870 143,710

Step 3: Allocation Base - Labour Hours 960 1,050 960


Step 4: Indentify Indirect Costs
Step 5: Calculate indirect cost rates 40 40 50

Step 6: Indirect Cost allocated to Job


Actual Labour hours x Rates B 38,400 42,000 48,000

Step 7: Total Costs A+B 182,110 210,870 191,710


Normal Costing
Mission Model

127,550
41,320
168,870

1,050

50

52,500

221,370
Budgeted Manufacturing Overhead Cost
Budgeted Direct Manufacturing Labor Cost
Actual Manufacturing Overhead Cost
Actual Direct Manufacturing Labor Cost

Inventory Balances on December 31, 2011, were as follows


Account Ending Balances
Work In Process 50700
Finished goods 245050
Cost of goods sold 549250

1. Calculate the manufacturing Overhead allocation rate


Budgeted Manufacturing Overhead Cost 125000
Budgeted Direct Manufacturing Labor Cost 250000
Budgeted Overhead allocation rate 0.5

2. Compute the amount of under-or - overallocated manufacturing Overhead


Actual Manufacturing Overhead Cost 117000
Allocated Manufacturing Overhead
Actual Direct Manufacturing Labor Cost 228000
Budgeted Overhead allocation rate 0.5 114000
Under- Allocation of Overheads 3000

3. Calculate the ending balances in WIP, Finished Goods, and Cost of Goods sold
1 Adjusting of Overhead allocation rate
Calculate a percentage of Under Allocation to
Allocated Overhead
Under- Allocation of Overheads 3000 2.632%
Allocated Manufacturing Overhead 114000

Allocated Manufacturing Overhead rate will be


adjusted by increasing 2.632%

2 Proration Method Approach A

Percentage of Prorating the


Ending Each account Under Allocated
Account Balances Balance to Total Overhead
1 2 3
3000
Work In Process 50700 6% 180
Finished goods 245050 29% 870
Cost of goods sold 549250 65% 1950
845000 100% 3000

Proration Method Approach B

Manufacturing
Overhead Percentage of
Ending included in the Overhead Included
Account Balances ending Balances in the Balances
1 2

Work In Process 50700 10260 9%


Finished goods 245050 29640 26%
Cost of goods sold 549250 74100 65%
845000 114000 100%
3 Immediate Write-off to Cost of goods Sold
Ending Ending balance
Account Balances Under allocated after adjustment

Work In Process 50700 50700


Finished goods 245050 245050
Cost of goods sold 549250 3000 552250
845000 3000 848000
125000
250000
117000
228000

2011 Direct Manufacturing Labor Cost in ending Balances


20520
59280
148200

Ending
Balances
after
Proration 0 0 0

50880 0 0 0
245920 0 0 0
551200 0 0 0
848000

Prorating Ending
the Under Balances
Allocated after
Overhead Proration
3 4
3000
270 50970
780 245830
1950 551200
3000 848000

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