Adjusting Overhead with the Proration Method

Adjusting Manufacturing Overhead with the Proration Method

What is the Proration Method

• Adjusts over- or under-applied overhead by spreading it out into: cost of goods sold, finished goods and work in process.
• When overhead is over-applied, the adjustment decreases overhead, cost of goods sold, finished goods and work in process.
• When overhead is under-applied, the adjustment increases overhead, cost of goods sold, finished goods and work in process.
• Used when the imbalance in manufacturing overhead is material to the company.
• The amount is allocated to each account proportionally to the accounts' ending balances.