Budgeted material costs 1,000
Budgeted labor costs 2,000
Budgeted overhead costs 1,500
Actual material costs 900
Actual labor costs 1,800
Actual overhead costs 1,250
1/1 WIP = 0
12/31 WIP = 2
1) Materials 25 Labor 20
2) Materials 15 Labor 32
Compute the overhead allocation rate.
Calculated the ending balance
WIP
COGS
Calculate the under or overallocated overhead.
Calculate theending balances
WIP
COGS
If the overallocated overhead amount is: Written off to COGS
Prorated using the ending balance (before proration) in COGS and WIP control accounts
Which of the methods in requirement 4 would you choose? Explain.
To determine which method to choose for prorating the overallocated overhead, we first need to calculate the overhead allocation rate. The overhead allocation rate is calculated by dividing the budgeted overhead costs by the budgeted value of the allocation base. In this case, we are given the budgeted overhead costs as $1,500. However, the question does not provide the allocation base, so we cannot calculate the exact overhead allocation rate.
Next, let's calculate the ending balance for both WIP and COGS.
1) For WIP:
Ending balance = 12/31 WIP - 1/1 WIP
= 2 - 0
= 2
2) For COGS:
Ending balance = Actual material costs + Actual labor costs + Actual overhead costs
= $900 + $1,800 + $1,250
= $3,950
Now, we need to calculate the under or overallocated overhead. This is done by subtracting the actual overhead costs from the allocated overhead costs.
Allocated overhead costs = Overhead allocation rate * Actual value of the allocation base
Since we don't have the exact overhead allocation rate or the actual value of the allocation base, we cannot calculate the under or overallocated overhead.
Moving onto the next part of the question, we need to calculate the ending balances for both WIP and COGS after considering the proration of the overallocated overhead.
1) If the overallocated overhead amount is written off to COGS, the ending balance for COGS would be:
Ending balance = COGS + Overallocated overhead
= $3,950 + Overallocated overhead
2) If the overallocated overhead amount is prorated using the ending balance in both WIP and COGS accounts, the ending balances would be:
WIP ending balance = WIP - Prorated overhead
COGS ending balance = COGS + Prorated overhead
Now, the question does not provide information on how to calculate the prorated overhead or the exact amount of the overallocated overhead. Therefore, we cannot determine the exact ending balances using either method.
Given the lack of information in the question, it is difficult to choose which method would be more appropriate. It would depend on the specific circumstances and company policies.