Question

The Mihaylo Company follows the proration approach in making year-end adjustments. In 2019, the amount allocated ($10,000) was different from the actual amount incurred ($12,000). The actual results are as follows:

Account	Balance (before proration)	Allocated Overhead       (before proration)
Work-in-Process	$10,000	$2,000
Finished Goods	$20,000	$3,000
Cost of Goods Sold	$70,000	$5,000

What is the ending balance of Cost of Goods Sold after proration, assuming proration is based on the manufacturing overhead allocated before proration?

Group of answer choices

$71,000

$72,000

$80,000

$90,000

Answer 1

Overhead allocated = $10,000

Actual overhead = $12,000

Under allocated overheads = Actual overhead- Overhead allocated

= $12,000-10,000

= $2,000

Under allocated overhead will be divided amount work in process, finished goods and cost of goods sold on the basis of allocated overhead before proportion i.e. in the ratio of 2000:3000:5000 or 2:3:5.

Thus under overhead allocated to cost of goods sold = Under allocated overheads x 5/10

= 2,000 x 5/10

= $1,000

Ending balance of cost of goods sold after proportion = Cost of goods sold before proportion + Under allocated overhead to cost of goods sold

= 70,000+1,000

= $71,000

First option is correct.

Kindly comment if you need further assistance. Thanks