Question

Fab Furniture has two manufacturing departments-Cutting and Finishing. It considers all of its manufacturing overhead costs to be fixed costs. The overhead estimates for the year and for one job (Order #75675) completed during the year are shown below Finishing 3 8,400,eee 98, eee 300, ee0 Total Cutting $7,800,008 150, eee 68,000 Estimated Data Manufacturing overhead costs Direct labor-hours Machine-hours $16,200,eee 240,e00 360,00e Finishing Cutting 31 Total Order # 75675 Direct labor-hours 23 54 23 26 49 Machine-hours Required: 1. Calculate the predetermined overhead rate and the amount of manufacturing overhead applied to Order #75675 assuming Fab Furniture uses a plantwide predetermined overhead rate based on direct labor hours. 2. Fab Furniture is considering using departmental predetermined overhead rates with direct labor-hours as the allocation base in Cutting and machine-hours as the allocation base in Finishing. Calculate the predetermined overhead rate for each department and the manufacturing overhead applied to Order #75675 using departmental rates. (Round your intermediate calculation to 2 decimal places.) 1. Plantwide predetermined overhead rate Plantwide manufacturing overhead applied to Order #75675 2. Cutting Department predetermined overhead rate Manufacturing overhead applied from Cutting to Order # 75675|

Answer 1

1)Plant-wide overhead rate =Estimated overhead /estimated direct labor hours

                     = 16,200,000 / 240,000

                     = $ 67.5 per direct labor hours

overhead applied to order 75675 = Actual direct labor hours *overhead rate

                                  = 54*67.5

                                  = $ 3645

2)

	Cutting department	Finishing department	Total overhead applied
Predetermined overhead rate	Estimated overhead for department /estimated Direct labor hours 7800000/150000 =$ 52 per direct labor hours	Estimated overhead for department /estimated Machine hours 8400000/300000 =$ 28 per machine hours
overhead applied	Actual direct labor hours *overhead rate 31* 52 =$ 1612	Actual machine hours *overhead rate 26*28 =$ 728	2340

3)Departmental overhead assigns overhead based on actual usage in each department ,thus it results in proper allocation of overhead to job/order.

Departmental overhead rate is suggestive.