Question

Exercise 2-13 Departmental Predetermined Overhead Rates [LO2-1, LO2-2, LO2-4] e 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 White Machine-hours Total fixed manufacturing overhead cost 30,000 5,000 264,000 366,000 ,000 48,000 Variable manufacturing overhead per direct labor-hour 5 4.00 Required 2. The job cost sheet for Job 203, which was started and completed during the year, showed the following: 20 Machine-hours Direct materials Direct labor cost s 500 $108 s 310 $ 360 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? Complete the question by entering your answers in the tabs given below.

Answer 1

Answer

• All working forms part of the answer
• Requirement 1

Working		Cutting	Finishing
A [given]	Total Fixed manufacturing Overhead cost	$264,000	$366,000
	Allocation base	machine hours	direct labor hours
B [given]	Amount of allocation base	48,000	30,000
C = A/B	Fixed Overhead rate	$                     5.50	$                 12.20
D [given]	Variable overhead rate	$                     2.00	$                    4.00
E = C+D	Predetermined Overhead rates = ANSWERS	$                     7.50	$                 16.20

• Requirement 2

	Cutting	Finishing	Total
Direct Material Cost	$500	$310	$810
Direct Labor Cost	$100	$360	$460
Manufacturing Overhead cost applied	$600 [80 machine hours x $ 7.50]	$324 [20 labor hours x $ 16.20]	$924
Total manufacturing cost assigned = Answer			$2,194 = Answer

• Requirement 3

YES, Different amount would have been assigned if DLHs had been used. This is because there’s a difference between ratio of machine hours to direct labor hours between two department and ratio between direct labor hours between two department.