Question

ABC Manufacturing Inc. ends the month with two jobs still in progress. Job 5 has $10,000 of materials, $2,000 of direct labor and $8,000 of manufacturing overhead allocated. Job 6 has $30,000 of materials, $2,000 of direct labor and $12,000 of manufacturing overhead allocated. The cost of goods sold for the month was $40,000 and there was no finished goods in stock as the month ended. If the manufacturing overhead was underallocated by $10,000, which of the following choices would be the correct way to prorate it based on ending balances before proration?
a. Job 6 should be allocated another​ $6,000 of cost
b. Job 5 should be allocated another​ $6,000 of cost
c. Cost of goods sold should be reduced by​ $4,000
d. Cost of goods sold should be increased by​ $4,000

Answer 1

Answer:

B. ​$6,150 of the underallocated manufacturing overhead should be allocated to​ work-in-process

Explanation:

Calculation to determine what would be the correct way to prorate it based on ending balances before proration

First step is to calculate the Balance of work in process before proration

Balance of work in process before proration= ($10,000 + $2,000 + $8,000) + ($30,000 + $2,000 + $12,000)

Balance of work in process before proration= $64,000

Now let calculate the Underallocated overhead to be allocated to WIP

Underallocated overhead to be allocated to WIP= $10,000 * $64,000 / ($64,000+$40,000)

Underallocated overhead to be allocated to WIP = $10,000 * $64,000 / $104,000

Underallocated overhead to be allocated to WIP = $6,150

Therefore Based on the above calculation what would be the correct way to prorate it based on ending balances before proration is that $6,150 of the underallocated manufacturing overhead should be allocated to​ work-in-process