Question

Mahon Corporation has two production departments, Casting and Customizing. The company uses a job-order costing system and computes a predetermined overhead rate in each production department. The Casting Department’s predetermined overhead rate is based on machine-hours and the Customizing Department’s predetermined overhead rate is based on direct labor-hours. At the beginning of the current year, the company had made the following estimates:

	Casting		Customizing
Machine-hours		19,400		15,400
Direct labor-hours		6,500		7,700
Total fixed manufacturing overhead cost	$	120,280	$	81,620
Variable manufacturing overhead per machine-hour	$	1.80
Variable manufacturing overhead per direct labor-hour			$	3.50

During the current month the company started and finished Job T138. The following data were recorded for this job:

Job T138:	Casting		Customizing
Machine-hours	80		60
Direct labor-hours	15		80

The amount of overhead applied in the Customizing Department to Job T138 is closest to: (Round your intermediate calculations to 2 decimal places.)

Answer 1

Customizing Department overhead cost = Fixed manufacturing overhead cost + (Variable overhead cost per direct labor-hour × Total direct labor-hours in the department)

Customizing Department overhead cost = $81,620 + ($3.50 per direct labor-hour × 7,700 direct labor-hours)

Customizing Department overhead cost = $81,620 + $26,950

Customizing Department overhead cost = $108,570

Predetermined overhead rate = Estimated total manufacturing overhead cost / Estimated total amount of the allocation base incurred = $108,570 / 7,700 direct labor-hours = $14.10 per direct labor-hour

Overhead applied to a particular job = Predetermined overhead rate × Amount of the allocation base incurred by the job = $14.10 per direct labor-hour × 80 direct labor-hours = $1,128