Three alternative ways to dispose of underallocated or overallocated costs.
1. Proration based on the total amount of indirect costs allocated (before proration) in
the ending balances of work in process, finished goods, and cost of goods sold.
2. Proration based on total ending balances (before proration) in work in process, Finished goods, and cost of goods sold.
3. Year-end write-off to Cost of Goods Sold. The adjusted allocation rate approach that restates all overhead entries using actual indirect cost rates rather than budgeted indirect cost rates.
4. The adjusted allocation rate approach that restates all overhead entries using actual
indirect cost rates rather than budgeted indirect cost rates.
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