Question

Proration is the spreading of underallocated or overallocated overhead among ending work in process, finished goods, and costs of goods sold.

a-true
b-false

Answer 1

Proration is not the spreading of underallocated or overallocated overhead among different accounts. It refers to the allocation of an amount proportionally among different entities or accounts.

Step-by-step explanation:

False, Proration is not the spreading of underallocated or overallocated overhead among ending work in process, finished goods, and costs of goods sold. Proration refers to the allocation of an amount or value proportionally among different entities or accounts. It is commonly used in finance and accounting to distribute costs or expenses in a fair and equitable manner.

For example, if a company incurs $100,000 in overhead costs and wants to allocate them to two departments based on their usage, the proration would involve dividing the costs proportionally according to the usage of each department. This ensures that the costs are allocated accurately and reflects the actual usage of resources by each department or entity.