Reference no: EM132564204

Question - Company Beta is reviewing the accounts for the year end of 2019. For allocating the manufacturing overhead (i.e., indirect cost pool) Company Beta uses the direct machine-hours (i.e., cost-allocation base). The budgeted indirect manufacturing costs for the company for the year of 2019 was $1,200,000 and the production budget was of 22,000,000 yo-yos with 550,000 machine-hours. During 2019 the company has allocated the indirect manufacturing costs based on its budget, however, by the year end of 2019, the actual indirect manufacturing costs was $1,300,000 and the actual production was 20,000,000 yo-yos with 500,000 machine-hours.

Required -

1. Identify whether there was an underallocation or an overallocation of indirect costs for 2019, and, if so, how much was this underallocation or overallocation of indirect costs.

2. Considering there is no stock or work in process in the beginning or end of year for Company Beta, how should this underallocation or overallocation be adjusted in the company accounting records?