Question: John Ting, Event Manager of Vision Music, schedules concerts for local bands and creates CDs and T-shirts to sell at each concert. Vision Music uses a normal-costing system with two direct-cost pools, labour and materials, and one indirect-cost pool, general overhead. General overhead is allocated to each concert based on 120% of the direct labour cost. The actual overhead equalled the allocated overhead as of March 20x7. The actual overhead in April was $19,800. All costs incurred during the planning stage for a concert and during the concert are gathered in a balance sheet account called 'Concert in Progress (CIP)'.
When a concert is completed, the costs are transferred to an income statement account called 'Cost of Completed Concerts (CCC)'. The following is cost information for April 20x7:
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From beginning CIP
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Incurred in April
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Band
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|
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Materials
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Labour
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Materials
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Labour
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Irok
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$5,700
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$7,500
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$1,100
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$2,000
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Freke Out
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7,000
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5,500
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1,400
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1,000
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Bottom Rung
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2,500
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4,750
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3,100
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2,500
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Dish Towel
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-
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-
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5,400
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4,500
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Rail Ride
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-
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-
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2,250
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2,500
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|
As of April 1, there were three concerts in progress: Irok, Freke Out, and Bottom Rung. The concerts for Dish Towel and Rail Ride were started during April. The concerts for Freke Out and Dish Towel were completed during April.
Required: a. Calculate CIP at the end of April.
b. Calculate CCC for April.
c. Calculate the ending balances in CIP and CCC if the under- or overallocated overhead amount is as follows:
i. Written off to CCC
ii. Prorated based on the ending balances (before proration) in CIP and CCC
iii. Prorated based on the overhead allocated in April in the ending balances of CIP and CCC (before proration)
d. Which method would you choose? Explain. Would your choice depend on whether overhead cost is underallocated or overallocated? Explain.