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:

	Department
	Cutting		Finishing
Direct labor-hours		9,000		77,000
Machine-hours		56,600		3,600
Total fixed manufacturing overhead cost	$	390,000	$	527,000
Variable manufacturing overhead per machine-hour	$	4.00		—
Variable manufacturing overhead per direct labor-hour		—	$	2.75

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
Direct labor-hours			4				18
Machine-hours			84				6
Direct materials		$	770			$	370
Direct labor cost		$	100			$	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?

question 1: Predeterminded overhead rate. Cutting ? Finishing ?

Question 2: Using the predetermined overhead rates that you computed in requirement (1), compute the total manufacturing cost assigned to Job 203. (Round your intermediate calculations to 2 decimal places and your final answer to the nearest dollar amount.) Total Manufacturing cost?

question 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

Cutting Finishing 90001 77000 56600 3600 390000 527000 Direct labor hour Machine Hours Fixed Manufacturing overhead cost Fixed Manufacturing overheads Rate : (390000/56600,527000/77000) ADD: Variable overhead rate Perdetermined overhead rate 6.89 6.84 4.00 10.89 Cutting 10.89 2.75 9.59 Finishing 9.59 Predetermined overhead rate Cutting Finishing 18 Direct labor hour Machine Hours Manufacturing overheads : Rate * Base Overhead Cost Applied Direct Material Direct Labor cost Manufactruing Cost Total overhead ocst applied 84 915 173 Cutting Finishing 914.76 172.62 770 370 100 1785 993 2777 450

Answers Predetermined overhead rate Total overhead ocst applied Cutting Finishing 10.89 9.591 2777 Does Substncially differen OH if Plantwide overhead rate YES