Question

White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates: Direct labor-hours Machine-hours al fixed manufacturing overhead cost Variable manufacturing overhead per machine-hour Variable manufacturing overhead per direct labor-hour Department Cutting Finishing 8,100 67,000 53,500 3,300 $ 390,000 $ 556,000 $ 4.00 - $ 3.75 Required: 1. Compute the predetermined overhead rate for each department 2. The job cost sheet for Job 203, which was started and completed during the year, showed the following: Department Cutting Finishing 18 Direct labor-hours Machine-hours Direct materials Direct labor cost 86 $ 730 $ 125 $ 380 $ 450 Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203. 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates?

Answer 1

Ans:

1	The predetermined overhead rate for each department
		Department
		Cutting	Finishing
	Total fixed manufacturing overhead cost	$ 390,000	$ 556,000
	Machine Hours	53,500
	Direct labour hours		67000
	Fixed overhead per machine hour	$ 7.29
	Fixed overhead per direct labour hour		$ 8.30
	Variable overhead per machine hour	$ 4.00
	Variable overhead per direct labour hour		$ 3.75
	Predetermined overhead rate per machine hour	$ 11.29
	Predetermined overhead rate per direct labour hour		$ 12.05
2	Total manufacturing cost assigned to Job 203
		Department
		Cutting	Finishing	Total
	Direct Materials	$ 730.00	$ 380.00	$ 1,110.00
	Direct labour cost	$ 125.00	$ 450.00	$ 575.00
	Manufacturing overhead	$ 970.94	$ 216.90	$ 1,187.84
	Total cost	$ 1,825.94	$ 1,046.90	$ 2,872.84
	Note:
		Department
		Cutting	Finishing
	Manufacturing overhead	86*11.29	18*12.05

3.Yes. Because, Machine Hour and Direct labor numbers are different.